Modernization of the Schools and Libraries “E-rate” Program and Connect America Fund, 5961-5991 [2015-01414]
Download as PDF
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
(a) * * *
* P = Sites with partial deletion(s).
*
*
*
*
*
[FR Doc. 2015–02266 Filed 2–3–15; 8:45 am]
BILLING CODE 6560–50–P
FEDERAL COMMUNICATIONS
COMMISSION
47 CFR Part 54
[WC Docket Nos. 10–90 and 13–184; FCC
14–189]
Modernization of the Schools and
Libraries ‘‘E-rate’’ Program and
Connect America Fund
Federal Communications
Commission.
ACTION: Final rule.
AGENCY:
In this document, the Federal
Communications Commission
(Commission) takes the next critical
steps to modernize the Universal
Service Fund’s Schools and Libraries
program, known as E-rate. Building on
the E-rate Modernization Order, the
Commission adopted in July, the
improvements to the program that the
Commission adopts in this Order seek to
close the high-speed connectivity gap
between rural schools and libraries and
their urban and suburban counterparts,
and provide sufficient and certain
funding for high-speed connectivity to
and within all eligible schools and
libraries. The Commission takes these
actions to ensure the continued success
of the E-rate program as it transitions
from supporting legacy services to
focusing on meeting the high-speed
broadband connectivity needs of
schools and libraries consistent with the
recently adopted program goals and
long-term connectivity targets. In the
Order on Reconsideration, the
Commission grants in part the petitions
for reconsideration of the areas
designated as urban for purposes of the
E-rate program. The Commission also
denies petitions for reconsideration of
the document retention period, the
phase out of support for telephone
components and other services, and
funding commitments that cover
multiple years. At the same time, the
Commission clarifies our cost
effectiveness test for individual data
plans and the cost allocation rules for
circuits carrying voice services.
DATES: Effective March 6, 2015, except
for amendments to §§ 54.313(e)(2) and
(f)(1), 54.503(c)(1), and 54.504(a)(1)(iii),
which are subject to the PRA and OMB
approval of the information collection
requirements. FCC will publish a
document in the Federal Register
tkelley on DSK3SPTVN1PROD with RULES
SUMMARY:
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
announcing the effective date. The
amendments to §§ 54.308(b), 54.309(b),
54.505(b)(3) introductory text and
(b)(3)(i), and 54.507(a) introductory text,
(a)(1), and (c) are effective on July 1,
2015; and amendments to §§ 54.505(b)
introductory text, (c), and (f) and 54.518
are effective on July 1, 2016.
FOR FURTHER INFORMATION CONTACT: Kate
Dumouchel, Wireline Competition
Bureau, Telecommunications Access
Policy Division, at (202) 418–7400 or
TTY: (202) 418–0484.
SUPPLEMENTARY INFORMATION: This is a
summary of the Commission’s Second
Report and Order and Order on
Reconsideration, in WC Docket Nos. 10–
90 and 13–184; FCC 14–189, adopted on
December 11, 2014 and released on
December 19, 2014. The full text of this
document is available for public
inspection during regular business
hours in the FCC Reference Center,
Room CY–A257, 445 12th Street SW.,
Washington, DC 20554. Or at the
following Internet address: https://
apps.fcc.gov/edocs_public/attachmatch/
FCC-14-189A1.pdf.
I. Introduction
1. In the Second E-rate Modernization
Report and Order (Order) and Order on
Reconsideration, we take the next
critical steps to modernize the Universal
Service Fund’s Schools and Libraries
program, known as E-rate. Building on
the E-rate Modernization Order we
adopted in July, the improvements to
the program that we adopt in this Order
seek to close the high-speed
connectivity gap between rural schools
and libraries and their urban and
suburban counterparts, and provide
sufficient and certain funding for highspeed connectivity to and within all
eligible schools and libraries. We take
these actions to ensure the continued
success of the E-rate program as it
transitions from supporting legacy
services to focusing on meeting the
high-speed broadband connectivity
needs of schools and libraries consistent
with the recently adopted program goals
and long-term connectivity targets.
2. Through the changes we make to
the E-rate program, we take further steps
forward in our effort to modernize the
program and place it on firm footing to
meet the program goals. As the changes
made in this Order and the E-rate
Modernization Order are implemented,
we will continue to identify additional
steps that can to be taken to further
modernize the E-rate program and
achieve our goals of: (1) ensuring
affordable access to high-speed
broadband; (2) maximizing the costeffectiveness of spending for E-rate
PO 00000
Frm 00067
Fmt 4700
Sfmt 4700
5961
supported purchases; and (3) making
the E-rate application process and other
E-rate processes fast, simple, and
efficient. We recognize that these
changes will require adjustments by
applicants, service providers, and other
stakeholders, and in conjunction with
USAC we commit to ensure that
sufficient training and educational
resources are provided to assist these
groups during this transition. Finally, as
always, we welcome feedback from
applicants, service providers, teachers,
librarians, state and local governments,
and all other stakeholders on additional
measures to reach our goals faster and
improve the E-rate program.
II. Maximizing Schools’ and Libraries’
Options for Purchasing Affordable
High-Speed Broadband Connectivity
3. We focus in this section on
providing schools and libraries,
particularly those in rural areas, more
options for purchasing affordable highspeed broadband connections. We agree
with the many commenters who make
clear that in order to meet the
Commission’s connectivity targets, in
addition to increased funding, we must
make changes to the program to meet
the need for affordable high-speed
connectivity to schools and libraries.
The CoSN Survey identifies the monthly
cost of recurring Internet access services
and an inability to pay for the capital or
non-recurring costs to get high-speed
connections as the two biggest barriers
to increasing connectivity to schools.
Likewise, the American Library
Association (ALA), the Public Library
Association, and others indicate that
lack of access to broadband
infrastructure and the high costs of
recurring services hamper libraries’
ability to meet our E-rate goals. As ALA
has explained, our nation’s libraries
depend on affordable, scalable, highcapacity broadband in order to complete
education, jumpstart employment and
entrepreneurship, and foster individual
empowerment and engagement. To meet
the connectivity targets we adopted in
the E-rate Modernization Order,
substantial numbers of schools and
libraries will need to find vendors
willing and able to provide affordable
high-speed connections to their
buildings and be able to afford the
recurring costs of those high-speed
connections.
4. Over the course of the last 18 years,
the Commission has recognized the
importance of giving local school
districts and libraries the flexibility to
purchase E-rate supported services that
meet their needs. With rare exceptions,
however, the program has not adopted
new tools for applicants to use in
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
5962
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
purchasing connectivity. The actions we
take today give applicants more options
for purchasing connectivity and
represent a crucial step in meeting our
first goal for the E-rate program:
ensuring affordable access to high-speed
broadband sufficient to support digital
learning in schools and robust
connectivity for all libraries.
5. The E-rate program historically has
fully funded all priority one (now
category one) funding requests, which
include funding requests for high-speed
broadband connections to schools and
libraries. Despite the program’s history
of funding all priority one requests, the
record demonstrates that a substantial
percentage of U.S. schools do not meet
the short term Internet Access
connectivity target of 100 Mbps per
1,000 users that we adopted in the Erate Modernization Order. Similarly, the
record demonstrates that most libraries
do not meet our short-term connectivity
targets. In addition, by not effectively
enabling E-rate applicants to undertake
large construction projects, purchase
dark fiber and consider self-construction
of high-speed networks, our current
rules and procedures prevent some
applicants from choosing the most costeffective options for increasing the highspeed broadband connections to their
school and library buildings.
6. We therefore take actions targeted
at closing the rural connectivity gap and
increasing affordable high-speed
broadband connections to schools and
libraries. First, we direct USAC to
suspend its policy requiring applicants
to amortize over multiple years upfront
charges for category one special
construction exceeding $500,000 while
allowing applicants to pay the nondiscounted portion of category one
special construction charges over four
years. Next, in limited circumstances
and with appropriate safeguards, we
adopt changes to the E-rate program’s
rules to equalize the treatment of lit and
dark fiber, to allow applicants to selfconstruct and operate connections to
their school and library buildings, and
to incentivize federal-state cooperation
in deploying broadband infrastructure
to schools and libraries in hard to
connect areas. Finally, we establish an
obligation for recipients of high-cost
support to offer broadband service to
requesting eligible schools and libraries
at rates reasonably comparable to rates
charged in urban areas.
7. We direct USAC, working with the
Wireline Competition Bureau (Bureau)
and the Office of the Managing Director
(OMD), to implement the changes we
make to the program in this Order. In so
doing, we reaffirm our delegation of
authority to the Bureau to issue orders
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
interpreting our E-rate rules and
otherwise provide clarification and
guidance in the case of any ambiguity
that may arise as necessary to ensure
that support for services provided to
schools and libraries operate to further
the goals we have adopted for the E-rate
program. We also direct the Bureau,
working with OMD and other
Commission staff, to make changes to
the E-rate information collections, as
needed, and to provide direction to
USAC to implement the changes.
8. These actions will result in
increased high-speed broadband
connections to schools and libraries in
all areas in furtherance of the E-rate
program’s Internet access and WAN/
last-mile goals and are consistent with
section 254 of the Act, which, inter alia,
directs the Commission to ‘‘enhance, to
the extent technically feasible and
economically reasonable, access to
advanced telecommunications and
information services’’ for schools and
libraries. Moreover, these changes will
allow applicants more flexibility to
pursue the most cost-effective option for
connecting schools and library
buildings. Although these incentives
will likely have the greatest effect on
broadband availability and affordability
in rural and high-cost areas, they will
also give E-rate applicants in urban
areas more purchasing options.
9. We are cognizant of the fact that
some commenters have expressed
concerns that the cumulative effect of
the actions we take in this order to
facilitate greater use of E-rate dollars for
special construction charges could
result in insufficient funds being
available for other category one
expenses and category two costs. In
order to address these concerns, we
require USAC to report to the Bureau if
E-rate commitments for special
construction charges resulting from the
rules we adopt today exceed ten percent
of the total E-rate cap for any given
funding year. In determining whether a
report is required, USAC shall consider
the commitments for special
construction charges for dark fiber, selfconstruction, and for special
construction that takes advantage of
state matching funds for a given funding
year. Any such report shall also provide
information to the Bureau concerning
the cost-effectiveness of the special
construction projects to which USAC
has committed funding. That report
shall be informed by the work done on
cost-effective analysis as provided for in
this Order. The Bureau shall present the
findings to the full Commission for its
consideration of the impact of special
construction charges on the long-term
financial viability of the program and
PO 00000
Frm 00068
Fmt 4700
Sfmt 4700
the ability of the Commission to meet
the E-rate program goals adopted in the
July E-rate Modernization Order.
A. Making the Payment Options for
Special Construction Charges More
Flexible (WC Docket 13–184)
10. To help applicants overcome the
cost barrier to high-speed broadband
deployment projects, we make a set of
administrative and rule changes that
will help schools and libraries more
easily undertake projects requiring
special construction charges. First, we
direct USAC to temporarily suspend its
policy of requiring applicants to
amortize large non-recurring category
one charges to encourage vendors to bid
on E-rate projects requiring special
construction. Second, we allow
applicants to pay the non-discounted
share of category one special
construction charges over four years
rather than requiring schools or libraries
working with limited budgets to pay the
entirety of their share in a single year.
We anticipate these changes will
provide the right incentives to schools
and libraries to consider necessary
broadband infrastructure deployments
and will attract a diverse slate of
vendors to such projects from which the
applicants can choose.
1. Suspending USAC’s Multi-Year
Amortization Policy for Non-Recurring
Construction Costs
11. To encourage efficient investment
in high-speed broadband infrastructure,
including the deployment of fiber, we
direct USAC to suspend for four years
its policy of requiring applicants to
amortize large category one nonrecurring charges. Encouraging
construction of high-speed connections
to schools and libraries is a crucial part
of our effort to ensure that all schools
and libraries achieve our connectivity
targets. Suspending the amortization
requirement will give applicants the
flexibility to plan large construction
projects knowing they can recover the Erate supported portion of any nonrecurring costs upfront, thus providing
greater certainty regarding funding and
removing this potential barrier to
infrastructure investment.
12. We are comfortable taking this
step not only because it will encourage
deployment but also because the
concerns described by the Commission
in 2000 that caused USAC to institute
this restriction have proven to be not
well-founded. In the Brooklyn Order,
the Commission expressed concern that
large upfront payments for nonrecurring services could create a critical
drain on the Fund, thereby limiting the
number of schools and libraries that
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
would receive funding. To prevent such
an occurrence, the Commission held
that applicants must amortize upfront
non-recurring charges when such
charges vastly exceed the monthly
recurring charges of the relevant service.
In response to this general direction,
USAC implemented a policy requiring
applicants to amortize upfront or nonrecurring charges of $500,000 or more
over a period of at least three years.
13. Large upfront payments have not
proven to be a drain on the Fund, and
would not have been even if they had
not been amortized. Moreover, we agree
with commenters that argue that
suspension of this amortization policy is
likely to incentivize efficient
investments in infrastructure, including
the deployment of fiber. As commenters
point out, USAC’s current amortization
policy requires many service providers
to obtain financing for special
construction projects, who then pass
along the costs of this financing to
applicants in the form of larger monthly
recurring costs. Consequently, USAC’s
current amortization policy may
actually increase the total costs borne
both by applicants and the program. In
addition, ALA and other commenters
indicate that lack of certainty about the
ability to recover costs in future funding
years may deter some applicants from
investing in large infrastructure projects
that will be amortized over future
funding years.
14. Some commenters express the
same concern articulated by the
Commission in the Brooklyn Order, that
if large numbers of applicants seek
support for substantial upfront
construction charges, the Commission
could receive a drastic increase in
category one requests. For that reason,
we choose to test the impact of
abolishing the amortization requirement
by temporarily suspending the
requirement for the next four funding
years. We are confident that temporarily
suspending the amortization
requirement will not create risk of
insufficient category one support
available for other schools and libraries,
particularly in light of the increase in
the E-rate funding cap that we adopt
today. In the E-rate Modernization
Order, we began the process of focusing
E-rate support on high-speed broadband
for our nation’s schools and libraries. In
this Order, as discussed in more detail
below, we are raising the annual E-rate
cap, in part to ensure there are sufficient
category one funds available to meet the
build-out costs of connecting currently
underserved schools and libraries.
Moreover, while some providers will
offer an upfront payment option, we
recognize that in other instances
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
providers will continue to incorporate
the cost of building out to schools and
libraries into their recurring charges. In
addition, because applicants are
responsible for paying the nondiscounted portion of the services they
purchase, we expect that this
requirement will deter some applicants
from undertaking expensive
construction projects. Applicants also
remain subject to the requirement to
select the most cost-effective service
offering, which will further dampen the
likelihood of a drastic increase in
category one requests.
15. We therefore direct USAC to
suspend application of its multi-year
amortization policy for funding years
2015 through 2018 and to allow
applicants to seek support for upfront or
non-recurring charges without imposing
any amortization requirements. In
evaluating this USAC requirement, we
considered a permanent end to the
requirement instead of merely
suspending its application. However,
we are cognizant of the interest reflected
in the Brooklyn Order of balancing the
immediate needs of some E-rate
applicants against the needs of all of the
applicants. We therefore adopt the
additional safeguard of suspending
rather than eliminating USAC’s
amortization policy for the limited
duration of the next four funding years.
We expect that USAC will keep the
Bureau apprised of how many and to
what extent applicants utilize this
suspension for the deployment of
infrastructure. We also direct the Bureau
to revise our data collection to collect
such information beginning in funding
year 2016. We believe this balanced
approach will provide us with sufficient
data to determine the best course
forward for subsequent funding years.
2. Allowing Applicants To Pay the NonDiscounted Portion of Non-Recurring
Construction Costs Over Multiple Years
16. To address the challenge some
applicants face in having sufficient
funds to pay the non-discounted portion
of special construction charges, we
allow applicants to enter into an
installment payment plan with their
service providers for the non-discounted
portion of category one special
construction charges beginning in
funding year 2016. Currently, applicants
must pay the entire non-discounted
portion of a special construction project
to the service provider within 90 days
of delivery of service. However, the
record demonstrates that obtaining
funding to pay the entire nondiscounted share of special construction
charges is a major barrier to high speed
connectivity for some schools and
PO 00000
Frm 00069
Fmt 4700
Sfmt 4700
5963
libraries. To help schools and libraries
overcome this barrier, we will allow
them to pay the non-discounted portion
of special construction charges in
installment payments of up to four years
from the first day of the relevant
funding year. Pursuant to our direction
above to USAC to suspend its
amortization policy, applicants will be
able to seek the discounted portion of
those same category one special
construction charges during a single
funding year.
17. Applicants who are interested in
this flexible payment arrangement must
specifically include this request in their
bids on their FCC Forms 470. By
notifying all potential bidders of their
interest, applicants will ensure that
vendors know and understand all
expected terms and conditions of the
school or library’s bid and that all
potential service providers who are
willing to offer an installment payment
option will be on notice of the
applicant’s interest and will bid
accordingly.
18. Service providers are under no
obligation to allow this payment
arrangement and should not do so in the
absence of such a request on an
applicant’s FCC Form 470. However,
those that do offer installment payments
in response to an FCC Form 470 seeking
bids that include this option must
specify in their bid submission whether
they are willing to allow this payment
arrangement and must also disclose all
material terms of that arrangement,
including any interest rate they would
charge the applicant and the term of the
installment payment plan they are
offering.
19. We recognize that allowing
applicants greater flexibility to pay the
non-discounted cost of special
construction charges combined with the
other changes we make in this Order
could increase demand for category one
support. However, a temporary increase
in the demand to the Fund for special
construction charges will ultimately be
beneficial to E-rate applicants and the
stability of the Fund. It will result in
more students and library patrons
enjoying access to scalable, high-speed
broadband connections and we expect
increasing flexibility for applicant’s
non-recurring payments for special
construction will allow applicants to
structure the agreements with service
providers so as to lower future costs for
recurring services. Moreover, the
increase in the E-rate funding cap we
adopt today should alleviate concerns
resulting from any temporary increase
in demand for special construction
charges.
E:\FR\FM\04FER1.SGM
04FER1
5964
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
20. As with our suspension of the
amortization requirement, we expect
that USAC will keep the Bureau
apprised of how many and to what
extent applicants utilize this installment
payment option for the deployment of
infrastructure. We also direct the Bureau
to consider how best to modify our data
collections to capture information about
the extent to which applicants take
advantage of this option and to require
reporting and certifications by
applicants and service providers
regarding the payment of the applicant’s
non-discounted share of special
construction charges.
21. We also amend § 54.504(a)(1)(iii)
to require applicants that take advantage
of this flexible payment option to certify
on their FCC Forms 471 that they are
able to pay all required installment
payments. Our rule currently requires
applicants to certify that they are able to
pay the discounted charges for eligible
services from funds to which access has
been secured in the current funding
year. This change is necessary because
applicants on an installment plan may
not have secured all of their nondiscounted payments in the applicable
funding year.
22. We also take this opportunity to
remind applicants and vendors that it is
a violation of our competitive bidding
rules for service providers to offer to pay
the non-discounted portion of E-rate
supported services, and a violation of
our gift rules and the prohibition on the
receipt of rebates for services or
products purchased with E-rate
discounts to forgive payment of such
charges or to accept such payment
forgiveness. By extension, service
providers that accept installment
payments of the non-discounted share
of E-rate supported services cannot
forgive any or all such payments.
Because interest and finance charges are
not eligible for E-rate support,
applicants may not seek support for
these charges. Additionally, we remind
applicants and service providers that
our document retention rules require
them to maintain records of payments
made so that USAC can verify that an
applicant has paid its full nondiscounted share. Applicants should
also be prepared to provide
documentation verifying their
agreements with service providers for an
installment payment plan.
B. Modifying the Commission’s Eligible
Services List and Rules To Expand
Access To Low Cost Fiber (WC Docket
13–184)
23. To further expand the competitive
options for schools and libraries seeking
high-speed broadband connectivity and
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
to drive down broadband costs for
applicants and the Fund, we amend our
eligible services list, effective in funding
year 2016, to equalize the E-rate
program’s treatment of lit and dark fiber;
amend our rules to allow applicants to
construct their own fiber networks
under limited circumstances; and incent
states to identify and provide financial
assistance for last-mile connections to
underserved schools and libraries.
1. Equalizing the Treatment of Lit and
Dark Fiber
24. First, we adopt the Commission’s
proposal in the E-rate Modernization
NPRM, 78 FR 51597, August 20, 2013,
to equalize the E-rate program’s
treatment of lit and dark fiber. Citing the
cost savings and bandwidth upgrades
that dark fiber can provide, school,
library, and local government
commenters from urban and rural areas
across the country overwhelmingly
support equalizing the treatment of lit
and dark fiber. The availability of a full
dark fiber option will help some E-rate
applicants attract multiple competitive
bids for construction and deployment
and will drive down broadband costs for
schools and libraries, as well as the Erate program. We will equalize the
treatment of dark and lit fiber beginning
in funding year 2016.
25. Dark-fiber leases and other darkfiber service agreements are commercial
arrangements in which a broadband
customer purchases use of a portion of
a provider-owned and maintained fiber
network separately from the service of
lighting (i.e. transmitting information
over) that fiber. Many competitive
providers now offer such arrangements.
In the Schools and Libraries Sixth
Report and Order, 75 FR 75393,
December 3, 2010, the Commission
concluded that expanding access to
such arrangements would ‘‘increase
competition among providers of fiber
and ensure[ ] that schools and libraries
. . . pay less for the same or greater
bandwidth,’’ and therefore added dark
fiber to the E-rate eligible services list.
The Commission limited dark-fiber
support in several ways, however,
‘‘pending further inquiry into the
potential impact on the E-rate fund’’ of
fully equalizing the treatment of lit and
dark fiber services. The E-rate program
currently supports the recurring costs of
leasing lit and dark fiber as category one
services. When a school or library leases
lit fiber, the modulating electronics
necessary to light that fiber are funded
as a category one service. By contrast, a
school or library that leases dark fiber
currently cannot receive category one
support for the modulating electronics
necessary to light the fiber. In addition,
PO 00000
Frm 00070
Fmt 4700
Sfmt 4700
the E-rate program currently provides
category one support for all ‘‘special
construction charges’’ for leased lit
fiber, but does not support special
construction charges for leased dark
fiber beyond a school or library’s
property line. Having now developed a
further record on this issue, we
conclude that leveling the playing field
between lit and dark fiber will expand
options for applicants and will likely
reduce costs for the Fund.
26. We received widespread support
from a broad cross-section of E-rate
stakeholders—from schools and state Erate experts to municipalities and
carriers—who believe the equalization
of the treatment of lit and dark fiber in
the E-rate program carries substantial
benefits. Commenters contend, for
example, that funding dark fiber on an
equal footing with lit fiber will provide
more choices and lower costs to schools
and libraries seeking enhanced
connections. The city of Boston points
out that ‘‘distinguishing between lit and
dark fiber serves no useful purpose’’ in
the E-rate program and that dark fiber
should be placed on an equal footing
with lit fiber if it is the proper solution
to the needs of the school or library.
State-level E-rate coordinators take a
similar view, as do competitive
providers.
27. While most schools and libraries
seeking high-speed broadband purchase
lit fiber services, the record makes clear
that dark fiber can be a powerful option
for a significant minority to drive down
broadband costs while increasing
capacity. For example, Maine, which
purchases school and library
connectivity through a statewide
consortium, has leased 1 Gbps dark fiber
circuits to 75 schools across the state.
Maine reports that because its dark-fiber
service provider charges on a per-mile
basis rather than based on bandwidth
used, the state consortium’s allinclusive cost for 1 Gbps connectivity to
these 75 schools is approximately $500
to $750 per-school per-month—roughly
the same per-circuit price the state
consortium pays for one percent of that
bandwidth (10 Mbps) for lit circuits
from other providers. Similarly, the
University System of Georgia’s
statewide research and education
network, PeachNet, is employing a dark
fiber solution to significantly increase
the high-speed broadband connectivity
to local school districts. Beginning July
2015, PeachNet will increase the
broadband connectivity to each local
school district from 3 Mbps per school
to 100 Mbps per schools while reducing
the Georgia Department of Education’s
per Mbps costs by 96 percent.
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
28. Dark-fiber services can also be a
cost-effective option for smaller, rural
districts that otherwise face challenges
affording high-speed circuits. For
example, the Newton Public School
District, an 11-school district centered
in Newton, Kansas, recently upgraded to
a district-wide 1 Gbps WAN while
decreasing costs by moving to a darkfiber solution. Likewise, the Morgan
County and Bleckley County school
systems in Georgia, which each serve
rural populations, connect their schools
through cable-provided dark fiber at
speeds of 1 to 10 Gbps. Weslaco ISD,
located in the south Texas Rio Grande
Valley, serves a largely poor and
minority population, including many
migrant families and relies on dark-fiber
leases to connect several of its 17 school
sites to its central network operations
center.
29. Equalizing the treatment of lit and
dark fiber is also consistent with the
Commission’s approach in the
Healthcare Connect Order, 78 FR 38606,
June 27, 2013. There, guided by the
principle that ‘‘providing flexibility for
HCPs [health care providers] to select a
range of services . . . will maximize the
impact of Fund dollars (and scarce HCP
resources),’’ the Commission concluded
that ‘‘supporting dark fiber provides an
additional competitive option to help
HCPs obtain broadband in the most
cost-effective manner available in the
marketplace.’’ In particular, and in
contrast to the current E-rate rules, the
Healthcare Connect Order authorized
support for special construction charges
for both lit and dark fiber, as well as for
the installation of equipment and
services ‘‘necessary to make [dark fiber]
service functional,’’ including
modulating electronics.
30. Following this recent precedent
and given the broad support in the
record, we will equalize the treatment of
dark- and lit-fiber services within E-rate,
beginning in funding year 2016.
Specifically, adopting the Commission’s
proposal in the E-rate Modernization
NPRM, we will provide category one
support for special construction charges
for leased dark fiber, as we do for leased
lit fiber, and we will provide category
one support for the modulating
electronics necessary to light leased
dark fiber.
31. To prevent applicants from using
E-rate discounts to acquire unneeded
capacity or warehouse dark fiber for
future use, we maintain the safeguards
that the Commission adopted in the
Schools and Libraries Sixth Report and
Order, and extend those it adopted in
the Healthcare Connect Order to E-rate.
First, to prevent warehousing of excess
fiber capacity, applicants cannot receive
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
E-rate funding for recurring costs
associated with dark fiber until it is lit,
and applicants may only receive
funding for special construction charges
for dark fiber if it is lit within the same
funding year.
32. To provide applicants sufficient
time to complete special construction
projects before a funding year begins,
we codify the bulk of USAC’s current
policy regarding special construction
charges. Specifically, we allow category
one infrastructure costs incurred six
months prior to that funding year,
provided the following conditions are
met: (1) The construction takes place
only after selection of the service
provider pursuant to a posted FCC Form
470 (or any successor form); (2) a
category one recurring service must
depend on the installation of the
infrastructure; and (3) the actual service
start date of that recurring service is on
or after the start of the funding year
(July 1). We also direct USAC to accept
invoices for special construction charges
meeting these conditions dated during
this period of time before the start of the
funding year. However, applicants that
choose to start construction before they
receive a funding commitment bear the
risk that their funding request will not
be granted. Because special construction
charges for leased dark fiber are now
eligible for category one support,
applicants seeking support for special
construction for dark fiber may avail
themselves of this limited exception for
early construction. In addition, as in the
Healthcare Connect Order, we will also
allow applicants to receive up to a oneyear extension to light fiber if they
demonstrate that construction was
unavoidably delayed due to weather or
other reasons.
33. Second, to ensure that applicants
treat the price of eligible products and
services as the primary factor in
selecting winning bids, we adopt
measures to ensure that applicants fairly
compare dark fiber with other options.
If a school or library intends to seek
support for special construction charges
associated with dark fiber, it must also
solicit proposals to provide the needed
services over lit fiber. Similarly, if a
school or library intends to seek support
to lease and light dark fiber, the schools
or library must also solicit proposals to
provide the needed services over lit
fiber over a time period comparable to
the duration of the dark-fiber lease or
IRU. In addition, if an applicant intends
to request support for equipment and
maintenance costs associated with
lighting dark fiber, it must include these
elements in the same application as the
dark fiber so that USAC can easily
review all costs together. These
PO 00000
Frm 00071
Fmt 4700
Sfmt 4700
5965
safeguards amply address concerns that
schools and libraries could choose darkfiber solutions when not the most costeffective solution, that they will exclude
certain costs when comparing dark- and
lit-fiber solutions, or that they will
warehouse spare capacity. Indeed, the
safeguards reflect the suggestions of
many of the commenters who raised
these concerns in the record.
34. USTelecom argues that the
protections adopted in the Healthcare
Connect Order will prove insufficient in
the E-rate context because ‘‘USACconducted cost-effectiveness reviews
[are] not viable for the E-rate program’’
and ‘‘the E-rate program—at least as it
is currently structured—provides fewer
incentives for applicants to make costeffective choices than the Healthcare
Connect Fund’’ because the top
discount rate is higher. We find both
arguments unpersuasive. While it is true
that the top discount rate in the E-rate
program is higher than the discount rate
for recipients of Healthcare Connect
funds, E-rate discounts vary, resulting in
a substantial number of E-rate
applicants receiving discount rates
below those discount rates received by
rural health care providers. In addition,
all E-rate applicants are required to
engage in cost-effective purchasing.
Further, USAC routinely conducts costeffectiveness reviews of E-rate
applications every year and we are
confident it can do so for applicants
choice of dark-fiber solutions, just as it
does for all the other purchasing
decisions applicants make.
35. Incumbent providers also assert
that equalizing the treatment of lit and
dark fiber ‘‘undermines national
broadband policy’’ because it ‘‘takes
traffic away from actual or potential last
mile facilities of broadband service
providers, which frustrates their ability
to utilize schools as anchor tenants for
broadband investment in surrounding
communities, especially in low density
areas.’’ It is our view that vibrant
competition on an even playing field
generally brings the lowest prices and
best promotes ‘‘national broadband
policy.’’ Accordingly, within a
framework that treats lit- and darkservices equally, incumbents are free to
offer dark-fiber service themselves, or to
price their lit-fiber service at
competitive rates to keep or win
business—but if they choose not to do
so, it is market forces and their own
decisions, not the E-rate rules, that
‘‘frustrate[] their ability to utilize
schools as anchor tenants.’’ Nor does it
‘‘take[] traffic away from actual or
potential last mile facilities of
broadband service providers,’’ if a
competitor wins school and library
E:\FR\FM\04FER1.SGM
04FER1
5966
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
business, for competitive providers of
dark-fiber service are also ‘‘broadband
service providers,’’ and our role in the
E-rate context is to encourage
participation in the E-rate program and
foster access to broadband by schools
and libraries, and not favor one provider
over another.
36. Finally, USTelecom reiterates its
statutory argument from past
proceedings that the Act prohibits
support for dark fiber because it is not
a ‘‘service’’ under section 254. The
Commission has rejected this
interpretation on multiple prior
occasions, and commenters neither offer
new arguments nor identify new facts
that would warrant revisiting this
conclusion. USTelecom contends that
even if dark fiber itself qualifies for
support, modulating electronics
necessary to light dark fiber and special
construction charges for leased dark
fiber do not, because whereas ‘‘dark
fiber is part of the transmission path
that enables the requisite functionality
(delivery of voice, video and/or data) to
be delivered to the classroom,’’
modulating electronics and special
construction charges are ‘‘unrelated to
the transmission of information to
individual classrooms.’’ USTelecom
provides no explanation for this
assertion, however, nor can we imagine
any. Lighting dark fiber ‘‘enables the
requisite functionality (delivery of
voice, video and/or data)’’ to just the
same extent as the dark fiber itself.
Indeed, modulating electronics are a
critical component of the E-rate
supported bundle when broadband is
sold as a lit-fiber service. Likewise, just
as special construction charges for lit
fiber are eligible because they are part
of the cost of bringing broadband
connections to school and library
buildings, so too are special
construction charges for dark fiber.
Further, we continue to believe that
dark fiber does enhance access to
advanced telecommunications and
information services consistent with
section 254(h)(2)(A). Therefore,
consistent with our policy conclusion
that lit- and dark-fiber services should
be treated equally, we see nothing in the
statute that would require us to draw a
distinction.
2. Permitting Self-Construction of HighSpeed Broadband Networks
37. We also promote high-speed
broadband connectivity by permitting
applicants to construct their own or
portions of their own networks when
self-construction is the most costeffective solution. We agree with
commenters that argue that allowing Erate applicants to own all or portions of
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
their own networks can help deliver the
most cost-effective broadband services
and provide financial stability for
certain E-rate recipients. We also agree
with commenters that argue for
safeguards to make sure that selfconstruction is only available in limited
circumstances when it is demonstrated
to be the most cost-effective solution. As
with our equalization of lit and dark
fiber, we allow the self-construction
option beginning in funding year 2016.
38. Providing support for the selfconstruction of high-speed broadband
networks is also consistent with the
Communications Act, as the
Commission recently found in the
Healthcare Connect Order:
[S]ection 254(h)(2) provides ample
authority for the Commission to provide
universal service support for HCP access to
advanced telecommunications and
information services, including by providing
support to HCP-owned network facilities.
Nothing in the statute requires that such
support be provided only for carrier-provided
services. Indeed, prohibiting support for
HCP-owned infrastructure when selfconstruction is the most cost-effective option,
would be contrary to the command in section
254(h)(2)(A) that support be ‘‘economically
reasonable.’’
We find this reasoning equally
applicable to self-construction
undertaken by schools and libraries that
participate in the E-rate program, and
we further find that the record now
before us demonstrates that support for
the self-construction of high-speed
broadband networks will fulfill the
mandate of section 254(h)(2)(A). As
explained above, for example, we are
adopting safeguards to ensure that selfconstruction is available only in limited
circumstances when it is demonstrated
to be the most cost-effective solution to
obtain high-speed broadband. The
record shows that under these
circumstances, support for selfconstruction will be ‘‘economically
reasonable,’’ while also fulfilling the
statutory mandate that we enhance, ‘‘to
the extent technically feasible . . .,
access to advanced telecommunications
and information services for all public
and nonprofit elementary and secondary
classrooms . . . and libraries.’’
39. Self-construction can be a useful
tool for some schools and libraries when
they receive insufficient responses to
their FCC Form 470 and associated
requests for proposals (RFPs). Testing
the benefits of allowing selfconstruction, the Commission permitted
applicants to construct their own
networks in the Rural Health Care Pilot
Program that preceded the Healthcare
Connect Order. Eight of the 50 pilot
program participants elected to use
PO 00000
Frm 00072
Fmt 4700
Sfmt 4700
support for self-construction for parts of
their networks, with two of those
participants opting to construct their
whole networks. The participants found
self-construction to be a useful tool for
cost-effective network deployment.
Because of the success of the Rural
Health Care Pilot Program, the
Commission adopted rules permitting
self-construction, subject to certain
safeguards, for the Rural Health Care
Program participants in the Healthcare
Connect Order. We follow the model the
Commission adopted in the Healthcare
Connect Order here, to ensure that the
Fund supports self-construction only
when it is the most cost-effective option.
40. Some commenters express
concern about the cost-effectiveness of
self-construction and the quality of
service it would provide and either
oppose a self-construction option or
request safeguards to ensure that
schools and libraries only have the
option of self-construction when it is
the most cost-effective approach. Other
commenters argue that we should
impose a cap on self-construction, as the
Commission did in the Rural Health
Care Program. Additionally, NCTA
recommends that we only authorize
funding for self-construction by schools
and libraries where they can
demonstrate that (1) there are no
commercial alternatives; (2) there are no
more cost-effective methods to receive
high-speed broadband; and (3) they
have the expertise to handle the burden
of operating and maintaining a fiber
network. For its part, expressing
concern about overbuilding, NTCA has
argued that self-construction should
only be allowed where an applicant has
sought broadband services from existing
providers and networks, and
connectivity is not available from those
providers and their networks; the
existing provider is given the
opportunity to demonstrate that it can
provide the broadband service at target
speeds within 180 days; there is a
meaningful matching funds
requirement; applicants are prohibited
from using revenue from excess capacity
as a source of matching funds; and
applicants demonstrate that they have
selected the option that will be most
cost-effective over the life of the asset.
41. We agree with many of the
concerns expressed by commenters,
particularly those aimed at ensuring that
self-construction is only undertaken
when it is the most cost-effective option,
but we do not agree with all of the
limitations on self-construction
suggested by commenters. Therefore, we
adopt safeguards ensuring that
applicants seek E-rate support for selfconstruction only when it is the most
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
cost-effective option, and requiring that
they actually use the self-constructed
facilities, but do not adopt many of the
other limitations on self-construction
suggested by commenters.
42. In allowing self-construction
under certain circumstances, we adopt
several safeguards to ensure that the
self-construction option will be
available only when it is necessary to
enable applicants to access fiber at costeffective rates. First, as the Commission
did for the Rural Health Care Program,
we allow self-construction only where
self-construction is demonstrated to be
the most cost-effective option after
competitive bidding. USAC already has
experience in evaluating costeffectiveness for large-scale projects
from the Rural Health Care Program.
Applicants interested in pursuing selfconstruction must solicit bids for both
service and construction in the same
FCC Form 470 and must provide
sufficient detail so that costeffectiveness can be evaluated based on
the total cost of ownership over the
useful life of the facility for applicants
who pursue the self-construction
option. As the Commission did in the
Healthcare Connect Order, we permit
applicants who have received no bids
on a services-only posting to pursue a
self-construction option through a
second posting for the same funding
year.
43. Second, as with applicants that
seek E-rate support for dark fiber, to
ensure that we are paying for necessary
services, applicants may only receive
funding for self-construction if the
facilities are built and used within the
same funding year. Pursuant to the
prohibition against reselling service
purchased with E-rate discounts,
applicants may only receive E-rate
support for services that they use. In
Section II.B.1, we codified a limited
exception to allow funding for special
construction charges for projects started
up to six months in advance of the
funding year, provided the following
conditions are met: (1) The construction
begins only after selection of the service
provider pursuant to a posted FCC Form
470 (or any successor form); (2) a
category one recurring service must
depend on the installation of the
infrastructure; and (3) the actual service
start date is after the start of the funding
year (July 1). This exception applies to
self-construction. As we do with dark
fiber, we will also allow applicants to
receive up to a one-year extension of the
service start date if they demonstrate
that construction was unavoidably
delayed due to weather or other reasons.
44. Third, the E-rate program rules
require applicants to secure all of the
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
resources necessary to make effective
use of the services they purchase. We
are confident that allowing schools and
libraries to select a self-construction
option with these meaningful safeguards
will give applicants that have been
unable to find providers willing to build
affordable high-speed connections
another option for purchasing such
connections.
45. We do not adopt NTCA’s
proposals that we give existing
providers a separate opportunity to
demonstrate that they are able to
provide service at the targeted speeds,
because to do so would interfere with
the competitive bidding process, which
is the E-rate program’s primary tool for
ensuring schools and libraries select the
most cost-effective option. Moreover,
because E-rate applicants’ requests for
bids are publicly available, providers all
have an equal opportunity to bid to
provide E-rate services, and we expect
that where there are existing providers
and networks capable of providing
service at the targeted speeds, they will
be well situated to offer very
competitive pricing through the
competitive bidding process.
46. At this time, we also decline the
suggestion that we set a cap on the
amount of funding available for selfconstruction projects. The first goal we
adopted for the E-rate program in the Erate Modernization Order is ensuring
that schools and libraries have
affordable access to high-speed
broadband. The record is clear that selfconstruction can provide one method
for some schools and libraries to achieve
that goal. Setting a cap on selfconstruction would create funding
uncertainty for those schools and
libraries that want to explore whether
self-construction would be the most
cost-effective option for them. In
recognition of commenters’ concerns
about the amount of funding spent on
self-construction above, we have
directed USAC and the Bureau to report
on the impact on the Fund of special
construction charges, including those
for self-construction.
47. We also decline to adopt
USTelecom’s suggestion that, if we
make a self-construction option
available, we target it to schools and
libraries that do not have broadband and
are located in rural areas. We do expect
that the self-construction option will be
most appealing to schools and libraries
in rural areas that have not been able to
purchase affordable high-speed
broadband. We also expect that
providers that already provide fiberbased services to a school or library
should almost always be able to offer
the most competitive pricing to that
PO 00000
Frm 00073
Fmt 4700
Sfmt 4700
5967
school or library. However, we decline
to limit the self-construction option to
applicants without broadband and in
rural areas because there are schools
and libraries that currently have
broadband access, including in nonrural areas, that may be able to purchase
more affordable broadband services if
they take advantage of the selfconstruction option. Moreover, having
self-construction as an option for all
schools and libraries will help drive
competition, thereby maximizing the
cost-effective use of E-rate funding,
which is one of the goals that we have
adopted for the program.
48. A commenter raised concerns that
permitting self-construction of networks
could violate the Antideficiency Act
because it would require long-term
commitments. Consistent with the rules
of the E-rate program, applicants will
receive funding for self-construction for
one funding year at a time only, so there
is no danger of long-term, unfunded
commitments that could violate the
Antideficiency Act.
3. Additional Discounts When States
Match Funds for High-Speed Broadband
Construction
49. To break down barriers to highspeed broadband access in rural, Tribal,
and other unserved areas, we will
provide additional category one funding
to match state funding for special
construction charges to connect schools
and libraries to high-speed broadband
services that meet the long term
capacity targets we adopted in the E-rate
Modernization Order. The record
demonstrates that additional funds are
needed for fiber builds and that states
can play a powerful role catalyzing
construction of high-speed broadband
connections to schools and libraries. For
example, the state of North Carolina has
invested approximately $150 million in
broadband deployment and, as a result
of this investment, 98 percent of North
Carolina schools have a fiber
connection. Maine has been able to
connect a significant portion of its
schools by constructing its own fiber
loop. Additionally, California recently
budgeted $26.7 million for grants for
last-mile build-out projects for public
school districts, county offices of
education, and direct-funded charter
schools.
50. In light of the role states can and
do play in spurring broadband
connectivity, some commenters
suggested that we increase the discount
rate for one-time capital investments to
build out statewide fiber networks,
while others suggested a separate fund
or priority for capital investments. We
agree that states are well-situated to
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
5968
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
bolster high-speed broadband
construction to schools and libraries. To
encourage state participation, beginning
in funding year 2016, we will increase
an applicant’s discount rate for special
construction charges up to an additional
10 percent in order to match state
funding the applicant receives on a onedollar-to-one-dollar basis. Working in
tandem, this additional state and E-rate
program funding will reduce the money
owed by applicants for what would
otherwise be the applicant’s nondiscount share to connect schools and
libraries to high-speed broadband
services. By way of example, an
applicant with a 90 percent discount
rate would receive its 90 percent
discount on the E-rate eligible
construction and, if the state provided
an additional contribution to the project
(such as 5 percent of the total project
cost), the Fund will match the state’s
contribution (here, an additional 5
percent of the total project cost). A
network with a 60 percent discount rate,
would receive its 60 percent discount
plus an additional 10 percent if the state
were to contribute 10 percent of the cost
of the build-out. States may contribute
more than 10 percent funding to the
project but the E-rate program will limit
its match to 10 percent of the project
cost (in addition to the existing program
discount rate). Because this match will
only be available for special
construction charges, applicants should
create separate funding requests on their
FCC Forms 471 for special construction
and for recurring charges. As we
monitor the impact of this category one
match on the E-rate program, we may
consider increasing the maximum
match.
51. We expect this additional funding
will encourage states to identify highspeed connectivity gaps—those schools
and libraries that do not have access to
affordable high-speed connectivity—and
address them. We recently aggregated
the data submitted in the E-rate
modernization proceeding into two
maps that allow users to view the
percentage of public schools with fiber
connectivity at the district-wide level
and the number of annual visits to the
library system. In order to assist states
in identifying the gaps in their highspeed connectivity and compare their
success at closing those gaps with other
states, we will maintain and continue to
update those maps through at least the
next three funding years. Furthermore,
consistent with the reporting and
transparency provisions we adopted in
the E-rate Modernization Order, we will
work to populate the maps with more
detailed information based on the E-rate
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
applications received beginning in
funding year 2015.
52. In recognition of the unique
government-to-government relationship
of Tribal nations to our federal
government, and the challenges that
Tribal nations face in obtaining
broadband for their schools and
libraries, we will match funding for
construction of high-speed connections
for Tribal schools and libraries from
states, Tribal governments, or other
federal agencies. Schools operated by or
receiving funding from the Bureau of
Indian Education and schools operated
by Tribal Nations will also be eligible to
receive matched funds from these
additional sources. Eligible libraries that
are funded by or operated by Tribal
governments will also be eligible for
these additional sources of matched
funds. As with non-Tribal schools and
libraries, we will provide an additional
match of up to 10 percent for high-speed
connection construction that meets our
E-rate connectivity targets.
53. A few commenters have expressed
concern that by allowing this limited
matching program, some applicants will
not be required to pay for any portion
of the special construction charges
eligible for such a match, and that
requiring applicants to pay their nondiscounted share is an important
safeguard in the E-rate program. We
decline to require that some portion of
the non-discount share be paid by the Erate applicant when the state
government, or where applicable
another federal agency or tribal
government is willing to pay some or all
of the applicant’s non-discount share of
special construction charges. Our
current rules already allow for state
agencies to pay the full amount of an
applicant’s non-discounted share of Erate supported services, and therefore
the matching program does not create
additional concerns in this regard. To
the extent that another governmental
entity pays a portion of the cost of the
E-rate supported service, that entity will
have an incentive to ensure that the
applicant engages in cost effective
purchasing. However, as with the other
options we adopt to increase broadband
connectivity to schools and libraries, we
also establish some limitations to
safeguard the E-rate program. First, to
ensure that this funding promotes
adequate connectivity, only projects that
provide broadband that meets the
capacity goals and measures that we
adopted in the E-rate Modernization
Order will be eligible for the matching
funding. In addition, to prevent
excessive or duplicative funding during
a high-speed broadband connection’s
useful life, any school or library
PO 00000
Frm 00074
Fmt 4700
Sfmt 4700
connection that is built with matching
funds will be ineligible to receive
additional matching funds for special
construction to the same buildings from
the E-rate program for 15 years.
C. Ensuring Affordable Broadband
Service to Schools and Libraries in
High-Cost Areas (WC Docket No. 10–90)
54. To ensure that schools and
libraries have access to affordable
broadband service in high-cost areas, we
establish an obligation for recipients of
high-cost support to offer broadband
service in response to a posted FCC
Form 470 to eligible schools and
libraries at rates reasonably comparable
to rates charged to schools and libraries
in urban areas for similar services. We
agree with commenters that such an
obligation will assist us in narrowing
the connectivity gap between rural and
urban schools and libraries and help
rural schools and libraries achieve the
connectivity targets we adopted in the
E-rate Modernization Order.
55. In the USF/ICC Transformation
Order, 76 FR 73829, Nov. 29, 2011, the
Commission unanimously stated its
expectation that eligible
telecommunications carriers would offer
broadband to community anchor
institutions in rural and high-cost areas
at speeds greater than the minimum
broadband performance standards. The
Commission further stated its
expectation that eligible
telecommunications carriers would
provide such offerings ‘‘at rates that are
reasonably comparable to comparable
offerings to community anchor
institutions in urban areas.’’ In the April
2014 Connect America Order and
FNPRM, 79 FR 39163, July 9, 2014, we
sought comment on how best to ensure
that this expectation is fulfilled. Having
developed a more fulsome record on
this issue, we conclude that establishing
a defined obligation for recipients of
high-cost support to offer broadband
service at affordable rates to requesting
schools and libraries is the most
effective way to ensure that this
expectation is fulfilled for schools and
libraries, and thereby ensure that the
high-cost program is working in
harmony with the E-rate program.
56. There is record support from
stakeholders representing schools and
carriers for obligating high-cost
recipients to offer broadband services to
schools and libraries. For example, the
Schools, Health & Libraries Broadband
(SHLB) Coalition and the State E-rate
Coordinators Alliance (SECA)
recommend ‘‘that recipients of Connect
America Fund funding should be
required to serve anchor institutions
with high-speed bandwidth as a
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
condition of receiving funding.’’
Similarly, a group comprised of rural
carrier associations, including NTCA—
The Rural Broadband Association and
WTA—Advocates for Rural Broadband,
supports a ‘‘requirement that any USF/
CAF recipient offer [broadband] services
. . . to most, if not all, anchor
institutions in the supported areas.’’
Other commenters urge the Commission
to ensure that the high-cost program
brings affordable broadband services to
schools and libraries in rural areas.
57. Imposing an obligation on
recipients of high-cost support to offer
affordable high-speed services in
response to a posted FCC Form 470 to
schools and libraries also makes the
most efficient use of limited universal
service support while ensuring
affordable access to broadband service
to eligible schools and libraries. In highcost, hard to serve areas, we expect that
recipients of high-cost support will be
best situated to offer affordable
broadband service to eligible school and
libraries. Obligating these recipients to
offer affordable services to schools and
libraries in high-cost areas increases the
likelihood that schools and libraries will
receive affordable broadband service at
the lowest cost to the E-rate program. At
the same time, this obligation decreases
the likelihood that limited E-rate
support will be spent to overbuild the
networks of high-cost recipients in some
rural and high-cost areas while schools
and libraries in other high-cost areas
remain unconnected.
58. We are not persuaded by those
commenters that argue against any
obligation to offer broadband services to
anchor institutions. For example,
USTelecom argues that the obligation to
provide service should not apply when
additional construction is required to
connect an anchor institution. We
conclude, however, that eligible
telecommunications carriers (ETCs)
subject to this obligation remain free to
charge reasonable special construction
charges to schools and libraries, and
those schools and libraries, in turn, will
be able to receive support for those
charges through the E-rate program.
Consequently, there is no reason that
this obligation should not apply in those
instances when additional construction
is required to connect a school or
library. While we allow special
construction charges to be funded by the
E-rate program, those charges would be
limited to what is necessary to provide
the additional capacity to the requesting
school and library from existing fiber
backhaul in the vicinity of the school or
library: essentially, the incremental cost
of a spur to serve the school or library.
Price cap carriers that elect to make a
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
state-level commitment for Connect
America Phase II model-based support
will be required to report annually the
geocoded locations where service is
newly available, so we will be able to
identify where service meeting our
targets should be available for schools
and libraries.
59. We also are not persuaded by the
Utilities Telecom Council argument that
the Commission should refrain from
adopting set standards for anchor
institutions until more data is available
and the need for support for anchor
institutions is better understood. The
Commission expressly established a
performance goal of ensuring universal
availability of broadband for anchor
institutions in the USF/ICC
Transformation Order. With respect to
schools and libraries, the Commission
already has adopted defined
connectivity targets for schools and
libraries based on comments in the
record. Our action to impose this
obligation on high-cost recipients is
designed to ensure that the high-cost
and E-rate programs work effectively
together. We therefore are not persuaded
by ADTRAN’s argument that we should
rely only on the E-rate program to
ensure increased bandwidth and
relative affordability for anchor
institutions. Our record indicates that
more needs to be done to close the
connectivity gap so that schools and
libraries in rural, high-cost areas can
meet our connectivity goals. We
conclude that obligating recipients of
high-cost support to offer broadband
services in response to a posted FCC
Form 470 to eligible schools and
libraries at affordable rates is an
economically efficient method for us to
fulfill the universal service mandate and
meet our connectivity goals.
60. Under the obligation we establish
here, high-cost recipients will be
obligated to bid on category one
telecommunications and Internet access
services in response to the posting of an
FCC Form 470 requesting such services
for eligible schools and libraries located
in the areas where the carrier is
receiving high-cost support. Further, to
ensure that schools and libraries in rural
and high-cost areas receive reasonably
comparable services at rates reasonably
comparable to those services paid by
libraries and schools in urban areas, we
also take steps to establish reasonably
comparable benchmarks for broadband
services offered to schools and libraries
by high-cost recipients.
61. Applicability. This obligation to
offer broadband service in response to a
posted FCC Form 470 to schools and
libraries will apply to all recipients of
high-cost support that are subject to
PO 00000
Frm 00075
Fmt 4700
Sfmt 4700
5969
broadband performance obligations to
serve fixed locations—specifically, rateof-return carriers that receive support
from the high-cost program, price cap
carriers that elect to make a state-level
commitment for Connect America Phase
II model-based support, price cap
carriers serving the non-contiguous
United States that elect to receive frozen
support in lieu of model-based support
for Phase II, and competitive bidders
that are awarded support in the Connect
America Fund Phase II competitive
bidding process. As a condition of
receiving high-cost support, carriers
receiving high-cost support must submit
bids in response to the posting of an
FCC Form 470 requesting broadband
service to an eligible school, library or
consortia located in the geographic area
where the carrier receives high-cost
support. The obligation to bid on
broadband service in response to a
posted FCC Form 470 extends only to
those schools, libraries and consortia
that are eligible for participation in the
E-rate program and that seek bids on
category one broadband services in a
given funding year by posting an FCC
Form 470. The Bureau may refer any
carrier that refuses to bid in response to
a request from an eligible school or
library to provide category one services
at rates reasonably comparable to those
paid by libraries and schools in urban
areas to the Enforcement Bureau for
further action as appropriate.
62. Minimum Levels of Service. We
require high-cost support recipients to
offer high-speed broadband connections
sufficient to meet the targets set forth in
the E-rate Modernization Order, when
requested by schools and libraries in a
posted FCC Form 470. Consistent with
the approach established for the
Connect America Fund, we emphasize
that providers remain free to offer a
range of service offerings to meet the
needs of their customer base, in
addition to the service offering meeting
the minimums we established in the Erate Modernization Order. Eligible
schools and libraries remain free to
request and purchase the services that
meet their specific needs. Our intention
here is to create a framework that will
enable schools and libraries to have
access to services meeting the E-rate
program’s connectivity targets at
affordable rates.
63. Timing. This obligation to offer
broadband services in response to a
posted FCC Form 470 to eligible schools
and libraries for price cap carriers that
elect to make a state-level commitment
for Connect America Phase II model
support, price cap carriers serving the
non-contiguous United States that elect
to receive frozen support in lieu of
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
5970
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
model-based support for Phase II, and
existing rate-of-return carrier ETCs will
become effective no sooner than E-rate
funding year 2016, which commences
July 1, 2016. For ETCs that are awarded
Phase II support through a competitive
bidding process, this obligation will
become effective in the first E-rate
funding year after their support is
authorized. We recognize, however, that
it may not be possible to offer service
meeting the E-rate modernization
connectivity targets as soon as this
obligation becomes effective in
geographic areas that do not yet have
the necessary fiber backhaul facilities.
In the Connect America Order we adopt
today, we establish graduated interim
milestones for price cap carriers
accepting the offer of Phase II modelbased support, with the first enforceable
interim deadline at the end of calendar
year 2017 and completion of
deployment not required until
December 31, 2020. We recognize that
construction to extend fiber deeper into
networks to meet Phase II obligations
will be an ongoing project over the
course of the Phase II term for price cap
carriers accepting the state-level
commitment. It is likely, therefore, that
Phase II construction to extend fiber
facilities to the general vicinity of a
particular school or library seeking more
robust capacity through the E-rate
program will not occur until 2017 or
later. We do not intend to disrupt the
orderly implementation of the
construction cycle for Connect America
Phase II. To the extent additional
network construction is necessary to
reach a requesting school or library, we
encourage high-cost recipients
expeditiously to complete deployment
of facilities and ensure the necessary
fiber backhaul is installed where
needed.
64. We will continue to provide a
more flexible approach to rate-of-return
carriers, which are obligated to extend
broadband service upon reasonable
request for service and within a
reasonable amount of time. Consistent
with the framework established in the
April 2014 Connect America Fund
Order, a request to serve would be
deemed reasonable to the extent
anticipated revenues (both end user
revenues and other federal and state
universal service support under existing
rules) are sufficient to cover the
incremental cost of extending service to
the requesting school or library. If the
available revenues are insufficient, then
a request would not be deemed
reasonable. To the extent any high-cost
recipient has the facilities in place to
provide service at the requisite speeds
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
to an eligible school or library in
geographic areas where it receives
funding, we expect such carrier to offer
such service in response to a request
from such school or library in the
funding year that the request is made.
65. Reasonable Comparability
Benchmarks. To ensure that schools and
libraries are able to purchase broadband
offerings at rates that are reasonably
comparable to similar offerings to
schools and libraries in urban areas, we
direct the Bureau to develop national
benchmarks for broadband services
offered to schools and libraries. Offering
services in response to a posted FCC
Form 470 at the reasonable
comparability benchmarks will be a
condition of receiving high-cost support
for those ETCs subject to this obligation,
and will not constitute a rebate to the
price of service. The benchmark price
offered will constitute the full retail
price before taking into account any
universal service support.
66. The April 2014 Connect America
Order and FNPRM sought comment on
how best to ensure that we fulfill the
expectation that schools and libraries
are able to purchase broadband offerings
at rates that are reasonably comparable
to similar offerings to schools and
libraries in urban areas. The Bureau
should build upon this record by
seeking more focused comment on
proposed benchmarks. Specifically, the
Bureau should rely upon data obtained
from FCC Forms 471 submitted by
urban schools, libraries, and consortia to
develop these reasonable comparability
benchmarks, as well as any other
publicly available data sources, and
should provide an opportunity for
public comment on its proposed
methodology and benchmarks before
adopting the benchmarks. Upon
adoption of such benchmarks, recipients
of high-cost support subject to an
obligation to provide fixed broadband
will be obligated to offer services at or
below these benchmarks in response to
the posting of an FCC Form 470
requesting broadband service to an
eligible school or library in the
geographic areas where the carrier
receives high-cost support for the next
funding year. The Bureau should use a
similar methodology to prepare
benchmarks in subsequent funding
years.
67. We also believe that this approach
will ensure that support to those ETCs
required to offer the benchmarked rates
will continue to be sufficient for
purposes of section 254. While we
recognize that capital costs are higher in
high-cost areas, no commenters suggest
that recurring operating costs are
significantly higher in high-cost areas
PO 00000
Frm 00076
Fmt 4700
Sfmt 4700
than compared to urban areas. Because
E-rate applicants can seek support for
special construction charges, as that
term is used in the E-rate context, ETCs
subject to the benchmark requirements
will be able to assess reasonable special
construction charges to schools and
libraries that solicit bids for broadband
services. Moreover, the national
benchmarks developed by the Bureau
will be reasonably comparable, but not
identical, to rates charged for similar
offerings to schools and libraries in
urban areas. The combination of the
availability of special construction
charges and reasonable comparability
benchmarks will ensure that universal
service support received by ETCs
remains sufficient for purposes of
section 254.
68. Tariffed Services. Those carriers
that offer broadband services pursuant
to tariffs must comply with our tariffing
rules implemented pursuant to sections
201 through 203 of the Act. The
benchmark rates established pursuant to
this Order for broadband services
provided to schools and libraries will
likely vary from rates charged for
similar services to other customers. To
the extent this is the case, we evaluate
whether it potentially raises concerns
under section 202(a), which forbids
‘‘unreasonable discrimination’’ in rates
charged to customers, and section
201(b), which requires rates to be ‘‘just
and reasonable,’’ as well as our tariffing
rules. For the reasons described below,
we conclude that the action we take
today does not raise such concerns.
69. To ensure that incumbent local
exchange carriers can offer services to
schools and libraries consistent with the
requirements of this Order and the Act,
we rely on the flexibility provided
under section 201(b) to decide that it is
just and reasonable for carriers to
provide broadband services at rates
specific to the class of educational
customers to which carriers must offer
benchmarked rates. Section 201(b)
provides that ‘‘communications by wire
or radio subject to this chapter may be
classified into day, night, repeated,
unrepeated, letter, commercial, press,
Government, and such other classes as
the Commission may decide to be just
and reasonable, and different charges
may be made for the different classes of
communications.’’ Accordingly, in
conjunction with the process for
establishing the benchmark rates, we
delineate here, pursuant to section
201(b) of the Act, a class of educational
customers to whom the benchmarked
rates may be offered. We delegate
authority to the Bureau to provide other
guidelines as necessary to implement
the objectives described above as part of
E:\FR\FM\04FER1.SGM
04FER1
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
the process of seeking public comment
on the analysis underlying the rate
benchmarks. For example, the Bureau
may consider establishing streamlined
procedures to enable those carriers that
offer broadband services pursuant to
tariffs to easily revise or re-file new
interstate tariffs. Additionally, the
Bureau should determine whether there
may be certain carriers for whom
application of the rate benchmarks
would be impracticable or unduly
burdensome and, if so, if there are
alternate methods to ensure that such
carriers are providing eligible E-rate
applicants with rates that are reasonably
comparable to similar offerings to
schools and libraries in urban areas.
70. We find that it is just and
reasonable under section 201(b) for
carriers to provide service at rates
specific to the class of educational
customers to which carriers must offer
benchmarked rates. This action furthers
significant universal service principles
that schools and libraries obtain access
to advanced telecommunications
services and access to
telecommunications services and
information services at rates that are
reasonably comparable to those charged
for similar services in urban areas. By
making a benchmarked rate available to
eligible schools and libraries, in highcost areas we will ensure that the
universal service program complies
with these statutory goals, as well as the
Commission’s stated expectation that
eligible telecommunications carriers
provide broadband to community
anchor institutions at reasonably
comparable rates. Based on the record,
we proceed incrementally, focusing for
now specifically on schools and
libraries rather than on broader
categories of entities within the scope of
section 254’s objectives. By requiring
carriers to offer services at rates specific
to schools and libraries, we will
advance the objectives of section 254;
that fact, coupled with the flexibility
afforded the Commission under the
‘‘just and reasonable’’ standard of
section 201(b), persuades us that
carriers’ provision of service at rates
specific to schools and libraries is not at
odds with section 201(b). We conclude
for the same reasons that carriers’
compliance with the requirements
adopted here do not violate section
202(a).
III. Adjusting The E-Rate Cap To Meet
The Program’s Connectivity Goals (WC
Docket 13–184)
71. Ensuring that schools and libraries
will be able to meet the high-speed
connectivity targets we have set for the
E-rate program will require a
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
combination of continued efforts to
lower the prices paid for school and
library broadband connectivity and an
increase in E-rate support necessary to
meet growing bandwidth demands of
schools and libraries. In this Order and
in the E-rate Modernization Order, we
have taken several steps to maximize
the cost-effectiveness of E-rate
supported purchases, including a
pricing transparency requirement and
several program changes in this Order
that will have the effect of increasing
competitive options, and thus lowering
prices, for schools and libraries to meet
their connectivity needs. However, the
record demonstrates that as more
schools and libraries upgrade their
broadband infrastructure and expand
robust Wi-Fi access into every
classroom and library space, bandwidth
demands of schools and libraries will
outpace any expected savings that can
be accomplished through program
efficiencies and declining per megabit
pricing. Even with a more efficient Erate program that achieves substantial
cost-savings, funding above the current
E-rate cap will be necessary if we seek
to connect more schools and libraries at
the targeted bandwidth levels. Based on
an extensive record that includes more
than 2,800 comments, 600 ex parte
presentations, and two cost estimates,
we raise the annual E-rate program cap
to $3.9 billion in funding year 2015.
Commenters stress the importance of
providing certainty to schools and
libraries that sufficient funding will be
available for both connectivity to and
within schools and libraries. For the
reasons explained below, we agree that
raising the cap, in conjunction with the
other work we have done to improve Erate purchasing, is the best way to
provide such certainty as well as to
meet the goals we have set for the
program.
72. The E-rate funding cap has gone
virtually unchanged for 17 years. In
1997, the Commission adopted a $2.25
billion annual funding cap for the E-rate
program, based on demand estimates
provided by McKinsey, Rothstein
Thesis, and the National Commission on
Library and Information Science
(NCLIS) Report. Since then, however,
actual demand for E-rate support has
exceeded that cap in all but one funding
year. In recent funding years, there has
been little or no funding available for
the internal connections necessary to
deliver broadband into classrooms and
libraries.
73. Throughout the program’s history,
the Commission has made various
efforts to spread E-rate dollars to more
applicants, such as, for example, by
limiting applicants to applying for
PO 00000
Frm 00077
Fmt 4700
Sfmt 4700
5971
discounts on internal connections to
twice every five years. In 2010, it also
began adjusting the E-rate cap to
account for annual inflation to try to
gradually align the program’s needs
with available funding. Even with these
changes, the program, while successful,
was falling short of its potential. Based
on the record created in response to the
E-rate Modernization NPRM, earlier this
year we took steps to restructure the Erate program. In the E-rate
Modernization Order, we phased out
support for outdated, non-broadband
services, shifting the focus to high-speed
broadband, with a particular focus on
how the E-rate program distributes
funding for internal connections. We
also made needed reforms to encourage
cost-effective purchasing, including
setting sufficient budgets for internal
connections, known as category two
services, and establishing pricing
transparency. These major policy
changes were a necessary first step on
the path to ensuring that the program
has the necessary resources to meet the
goals we have adopted for the E-rate
program.
74. At the same time, we sought
comment on the future funding levels
needed for the E-rate program in order
to meet the established goals. We
invited stakeholders to submit data on
the gap between schools’ and libraries’
current connectivity and the specific
targets set out in the Order, as well as
information on how much funding
would be needed to bridge that gap
within the E-rate program. In August,
the Bureau released a Staff Report
summarizing a portion of the large
amount of data gathered in the record in
order to assist parties considering
responses to the E-rate Modernization
FNPRM, 79 FR 49036, August 19, 2014.
In conjunction with the Staff Report,
Commission staff released two maps
providing a visualization of the fiber
connectivity to schools and libraries
based on data in the record, and have
continued to update those maps to
reflect additional data stakeholders have
submitted.
75. Based on the substantial record
developed in this proceeding, in this
section we set out the anticipated costs
to meet the goal of ensuring affordable
access to high-speed broadband
sufficient to support digital learning in
schools and robust connectivity for all
libraries. First, in order to provide
certainty and administrative simplicity
to applicants and to the Fund, we
extend for three additional years, with
a small modification, the category two
budget approach we adopted in the Erate Modernization Order for funding
costs for internal connections for
E:\FR\FM\04FER1.SGM
04FER1
5972
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
schools and libraries. Taking this
change into account, we set out the
projected costs of category two services
to the E-rate program over the next five
funding years. Next, we discuss the
factors that will impact the cost of
category one services in order to ensure
schools and libraries can meet the
connectivity targets we adopted in the
E-rate Modernization Order. Based on
these projections, and to help provide
more certainty regarding the availability
of E-rate support, we raise the annual Erate cap to $3.9 billion beginning in
funding year 2015. Setting the cap at
this level is based on a substantial
amount of data and analysis and reflects
our judgment of the amount of funding
that will be necessary to meet the longterm broadband connectivity targets for
all schools and libraries, including
internal connections, non-recurring
infrastructure upgrades, and significant
increases in monthly recurring Internet
access charges.
A. Ensuring Certainty for Applicants
Seeking Support for Category Two
Services
76. Schools. First, we agree with those
commenters that stress the importance
of predictability and certainty by
extending the applicant budgets for
schools established in the E-rate
Modernization Order for category two
services. In July, we adopted a two-year
test period for the pre-discount
applicant budgets for category two
services for funding years 2015 and
2016. Applicants that receive
commitments for category two support
in either of those funding years will be
subject to the five-year budget. To make
the test period for the budget-based
approach to awarding category two
support consistent with the full fiveyear cycle that such budgets are based
on, we expand the test-period for three
additional years through funding year
2019.
77. In the E-rate Modernization Order,
we explained that we were confident
that we could meet the $1 billion target
for two years. However, we noted that
the longer-term funding available for
category two budgets is linked to the
broader question of the long-term
funding needs of the E-rate program,
and we sought comment on these
funding needs of the program. As the
record demonstrates, without the
changes that we make today, applicants
who do not seek or receive category two
support in funding years 2015 or 2016
would face uncertainty about whether
they will be able to receive E-rate
support to meet the Wi-Fi needs of their
students and patrons in later years. By
addressing the longer-term funding
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
needs of the program and extending
these category two budgets for three
additional funding years in this Order,
we help ensure sufficient funding for
category two services, increase certainty
for applicants about the availability of
funding beyond funding years 2015 and
2016, and simplify the administration
for USAC.
78. A sufficiently funded, multi-year
budgeted approach for category two
funding provides both certainty and
flexibility for applicants. This
combination allows applicants to
request support only for what they need
when they need it, rather than seek
funding for unnecessary components
out of fear that there will not be support
in the next funding year. It also helps us
achieve our goal of ensuring affordable
access to high-speed connectivity
within schools and libraries, by
providing broader and more equitable
support for the internal connections
necessary to support digital learning.
79. Some commenters argue the perstudent budgets should be discontinued
and replaced with a funding cap
increase alone. We disagree and restate
our firm belief that raising the funding
cap alone will not ensure that schools
and libraries can purchase affordable
internal connections. Raising the cap
without any additional policies or limits
on how the program funds internal
connections does not address the
challenges faced by applicants created
by widely variable costs for similar
services, inefficient network planning,
or incentives at the top discount levels
of the E-rate program to engage in
wasteful purchasing. We also firmly
disagree with the assertion that perstudent budgets provide ‘‘[t]oo little
discount funding’’ to all applicants and
are inequitable. These budgets maintain
the program’s historic focus on the
highest poverty schools and libraries by
continuing to use concentrations of
poverty to determine the discount level
available and the priority of applicants.
At the same time, the five-year budgets
promote cost-effective spending by
focusing E-rate dollars on the internal
connections that are essential for
wireless networks, and therefore, allow
us to provide a sufficient and
predictable amount to deploy Wi-Fi to
students and library patrons throughout
the nation, and not just to the applicants
at the highest discount levels.
80. We reaffirm the $150 per student
pre-discount budget, with a $9,200 prediscount funding floor, as a reasonable
limit on the amount of E-rate discounts
available to schools, consistent with
data in the record showing local area
networks (LAN) and wireless LAN
(WLAN) deployments in classrooms
PO 00000
Frm 00078
Fmt 4700
Sfmt 4700
across a number of school districts
across varied geographies. In
conjunction with other measures taken
in the E-rate Modernization Order, such
as pricing transparency to help arm
applicants with information to make
smart purchasing decisions and
lowering the maximum discount rate
from 90 to 85 percent to encourage
applicants to pursue the most costeffective options, this $150 per student
budget provides a sufficient amount of
support for the necessary internal
connections. Some applicants urge us to
recognize that the internal connections
needs of schools are not uniform. While
the E-rate Modernization Order
recognized that there are different
construction materials or variations in
labor costs, the majority of costs for
LANs are for commodity equipment,
which sees nationwide pricing and
competitive markets. We again decline
to set out separate budgets for schools
in different situations, apart from the
adjustments for poverty and rurality that
our system of discounts already
provides. We expect the Bureau to
closely monitor these budget levels as
described below.
81. We take this opportunity to revisit
the issue of how schools should count
students that attend multiple schools.
Consistent with our desire to ensure
sufficient funding for the number of
students using the internal connections
at a school, in the E-rate Modernization
Order we explained that ‘‘[s]tudents
who attend multiple schools . . . may
be counted be both schools in order to
ensure appropriate LAN/WLAN
deployment for both schools.’’ We now
clarify that schools should include in
their student count, for purposes of
calculating category two budgets,
students that attend part-time only
when doing so regularly increases the
maximum number of students on the
school premises at the same time,
during the school day. This means that
students who attend a virtual class that
originates at a school, but who are not
on the school premises cannot be
counted in that school’s student count.
We also note that students attending
after-school activities or after-school
events cannot be included in the
student counts. Schools should also be
prepared to demonstrate their student
count calculations during PIA review
and if they count part-time students to
demonstrate how those students
regularly increase the maximum number
of students on the school premises at
the same time during the school day.
82. Libraries. We also extend for three
additional funding years, with a small
upwards adjustment for libraries in
more urbanized areas, the pre-discount
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
budget for libraries that we adopted for
funding years 2015 and 2016 in the Erate Modernization Order. We adopted a
$2.30 per square foot pre-discount
budget for libraries in that Order, with
a funding floor of $9,200, representing
a reasonable pre-discount budget level,
consistent with data submitted into the
record prior to its adoption. Having
sought further comment specifically on
the issue of user density in urban
libraries because ‘‘the record of library
funding needs for internal connections
[was] not as robust as we would like,’’
we now adopt a separate budget of $5.00
per square foot for libraries located in
cities and urbanized areas with a
population of 250,000 or more, as
identified by the Institute of Museum
and Library Services (IMLS) locale
codes of 11, 12, and 21.
83. Calculating the library budget
based on square footage continues to
provide the E-rate program a simple,
fast, and efficient mechanism for
libraries and USAC, consistent with the
Commission’s third goal for the
program. There is broad support in the
record for the position that the library
budget should be greater for urban
libraries, because these libraries serve
more people per square foot than other
communities and Wi-Fi performance
may be impacted by a high density of
users at one time. There is also support
in the record for considering the number
of users or connected devices when
setting the category two library budget,
particularly for large urban libraries. We
agree that usage density may increase
the cost of internal connections.
However, as the record indicates, there
is not a standardly reported metric on
the number of Wi-Fi users in libraries
that would provide a simple and
predictable formula for all libraries. We
therefore decline to adopt the proposals
that seek a different budget calculation
based on daily visitors or public
computer users, because using those
metrics would impose new
administrative burdens on libraries,
would be difficult to administer, could
improperly incent purchasing
unnecessary public computers, and
would delay application review by
being difficult to verify. Square footage
continues to present the best option for
providing a sufficient budget for
libraries that is simple for applicants to
calculate and simple for USAC to
administer.
84. Because we agree that usage
density increases the cost of internal
connections and the record supports a
decision that usage density is greater in
large urban libraries, we elect to
increase the pre-discount per-square
foot library budget for libraries in the
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
most densely populated areas to $5.00
per square foot over five years. The
Urban Libraries Council (ULC) suggests
a category two pre-discount budget of
between $5.00 and $7.00 per square foot
for urban libraries, a number of other
commenters support an increase to at
least $4.00 per square foot. We take into
account this range of estimates that have
been submitted into the record, along
with the lack of precise evidence that
would militate in favor of picking a
specific estimate. As such, in order to be
fiscally cautious, we adopt a value
toward the bottom end of the range of
$5.00 per square foot as the pre-discount
budget for the most urban libraries.
85. To determine which libraries get
the benefit of the increased per-squarefoot budget, we look to the IMLS
classification of libraries. IMLS assigns
locale codes in order to identify the type
of geographic areas in which a library
outlet is located, using the same
methodology as the National Center for
Education Statistics’ Common Core of
Data datasets. It divides geographic
areas into four categories—city,
suburban, town, and rural, each with
three subcategories. We agree with
ULC’s recommendation that we provide
higher funding per square foot for those
libraries located in the most densely
populated areas using the IMLS locale
codes of ‘‘11—City, Large,’’ ‘‘12—City,
Midsize,’’ and ‘‘21—Suburb, Large.’’
These three locale codes capture
urbanized areas within principal cities
with a population over 100,000 and
those areas outside of a principal city,
but within an urbanized area with a
population of over 250,000, which are
the most densely populated areas. These
locale codes therefore provide a
reasonable proxy for identifying
libraries that may see a higher density
of users per square foot. As described
below, the Bureau will continue to
evaluate these library budgets for
category two services. We also take this
opportunity to remind library
applicants, regardless of their category
two budget levels or square footage, of
the obligation to select the most costeffective service offered and to consider
price as the primary factor.
86. Our decision to extend both of
these five-year pre-discount budgets for
schools and libraries by three additional
funding years reflects our concern that
using applicant budgets for only two
funding years will be inadequate to
provide certainty for applicants making
purchasing decisions. Additionally, it
reflects our finding that these budgets
are sufficient and that extending them
will simplify the administration of the
program and provide clarity and
certainty to schools and libraries. We
PO 00000
Frm 00079
Fmt 4700
Sfmt 4700
5973
agree with commenters that extending
the applicant five-year budgets will
increase certainty about how applicants
and certain services will be treated
beyond funding year 2016 and whether
funding will be available. We are
particularly concerned that applicants
could decide to delay seeking funding
for needed internal connections in
funding years 2015 or 2016 because they
would like to see if there is additional
funding in funding year 2017. Further,
this extension simplifies administration
of the program for both applicants and
USAC by treating all applicants the
same, regardless of when they receive Erate support for category two services.
87. To ensure that the applicant
budget remains effective at
accomplishing our goal of ensuring
affordable access to high-speed
broadband sufficient to support digital
learning, we expect the Bureau to
monitor these applicant budgets and
provide a report on their sufficiency to
the Commission before the opening of
the filing window for funding year 2019.
This analysis is important for two
reasons. First, information
demonstrating the success, or lack
thereof, of this approach to providing
support for internal connections will
provide the Commission with data to
determine if the category two budget
approach should be made permanent.
Second, if the Commission does not
extend the budget approach beyond
funding year 2019, the information
learned during the test-period will
provide significant information to assist
USAC in making sure that category two
requests continue to be cost-effective.
88. Therefore, working with OMD and
USAC, the Bureau shall analyze the data
from applicants for trends across
different types of applicants or regions
of the nation, particularly those schools
that serve students with special
education services. This may include
evaluation of FCC Form 471 pricing data
received from applicants to ensure that
cost-effective offers are reaching
applicants in all parts of the country. In
particular, our record on the costs for
urban libraries that see higher density
bandwidth demands is not as robust as
our other data. Therefore, as part of our
existing direction to seek feedback on
sufficiency of LAN/WLAN capacity, we
also direct the Bureau to analyze the
applicant requests from funding years
2015 through 2018 for libraries serving
different population sizes, so that we
have information needed to assess
whether the category two library budget
is reasonable. The Bureau may consider
including in its analysis passive data
measurements in order to measure the
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
5974
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
impact of the number of users on the
Wi-Fi deployments.
89. Basic Maintenance, Managed WiFi, and Caching. Because we extend
these category two applicant budgets,
we also extend the eligibility for basic
maintenance, managed internal
broadband services, and caching
through funding year 2019. These
services provide benefits to applicants
seeking flexibility in how to set up their
networks, but we had concerns about
how to prevent unnecessary or wasteful
spending especially given that many
managed Wi-Fi agreements run over
multiple years. The applicant budgets
continue to ‘‘mitigate some of our
concerns about waste or abuse’’ as long
as they are in effect. We direct the
Bureau to include these eligible services
on the Eligible Services List accordingly
in funding years 2016 through 2019.
90. We also note commenters’ concern
that caching services and managed WiFi are additional costs for category two
services not accounted for in the
budgets. We extend the eligibility of
these services in order to provide
additional choices for applicants
seeking the most cost-effective
technology options for their unique
situations. For instance, a small school
district or library system without a
technology director may find managed
Wi-Fi allows it to more quickly deploy
advanced LANs by spreading its costs
over a multi-year contract and relying
on the technical expertise of the
managed Wi-Fi provider. Similarly, a
school may decide that it is makes sense
to incorporate caching into its
connectivity plans and wants to seek Erate support for those services. These
services, however, are not essential
components for all applicants seeking to
deploy Wi-Fi, and we therefore do not
further increase the applicant budgets to
account for them.
91. Category Two Costs. We find that
the $1 billion annual target budget set
for category two services in the E-rate
Modernization Order is sufficient to
provide the E-rate support needed for a
five-year deployment of LANs and
WLANs. In July, we stated that the
question of available funds for these
five-year budgets was closely linked
with the long-term funding for the E-rate
program. We therefore applied the fiveyear budgets to applicants that received
E-rate support for category two services
in funding years 2015 and/or 2016,
pending resolution of the program’s
overall funding needs. Having now
extended these category two applicant
budgets for all applicants for three
additional funding years, we reaffirm
the funding level for the E-rate support
for category two budgets, based on the
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
analysis set out in the E-rate
Modernization Order. We also index the
category two budget target and the
applicant budgets to inflation.
92. This $1 billion annual target for
category two services provides greater
access to E-rate support for both schools
and libraries. From funding years 2008
through 2012, the program provided Erate discounts for internal connections
of between $700 million and $1.2
billion. However, this funding provided
support for less than 11 percent of the
more than 100,000 schools participating
in the program each year and less than
four percent of public libraries. With the
adoption of pre-discount budgets
sufficient to deploy LANs and WLANs
and a $1 billion target, the program will
be able to support an average of 10
million students each funding year at
different discount levels, providing
broader and more equitable support
across the nation. Additionally,
targeting a consistent amount of support
each year allows us to reduce
fluctuations in the contribution factor
and uncertainty over availability of
funding that had previously existed in
the E-rate program.
93. Although some commenters
express concern that $5 billion in
category two support over five years is
insufficient to reach the schools and
libraries at the lowest discount levels,
we restate our finding that the funding
target will provide sufficient funding to
applicants seeking category two
support. First, we disagree with
assertions from commenters that the
EducationSuperHighway/CoSN Ongoing
Cost Model’s $1.6 billion in annual
costs for category two services is the
appropriate measure. That model was
one of several data points used in
determining the category two budgets
for schools. In particular, commenters
point to analysis done by Funds for
Learning that assumes all applicants
will apply and all applicants will
request the entirety of their budgets
each year. We disagree with these
assumptions. In the E-rate
Modernization Order, we noted that
some schools and libraries will not seek
funding and others will seek less than
the full budgeted amount. Additionally,
the average size of the requests per
student in the lower discount levels is
well below $150 per student, and we do
not expect a dramatic increase in the
size of requests per student from such
applicants. We note, as one example,
that data in the record showed managed
Wi-Fi contracts for as low as $19 per
student annually, which is less than 65
percent of the available budget over five
years.
PO 00000
Frm 00080
Fmt 4700
Sfmt 4700
94. We recognize that there is pent up
demand and that applicants may seek a
larger portion of the budget early on in
the five-year cycle, leaving applicants at
the lower discount levels with some
uncertainty about future funding.
However, by extending applicant
budgets for three more funding years
and increasing the size of the E-rate cap
to help meet both category one and
category two demand below, we provide
much-needed certainty to applicants,
allowing them to take advantage of the
flexibility the five year budgets offer.
Indeed, providing needed flexibility is
one of the benefits of these multi-year
budgets. School districts with a large
number of schools may simply be
unable to deploy networks in every
school for a number of reasons,
including their own budget match and
the ability of a vendor to install to every
school. Similarly, applicants that
request support for a managed Wi-Fi
solution may end up requesting just a
portion of their budget each of the five
funding years, leaving additional
funding for applicants at a lower
discount level. For these reasons, we
expect category two applicant requests
to be reasonable and that the Bureau
will monitor these budgets closely.
B. Meeting Applicants’ Needs for
Category One Support
95. Having set an annual category two
budget target of $1 billion, we now turn
our focus to determining how meeting
the long-term broadband connectivity
targets that we set in the E-rate
Modernization Order will drive future
funding needs for category one services.
The record demonstrates that growth in
demand for category one funding will be
driven by a combination of: (i) Requests
for support for non-recurring
infrastructure upgrades; and (ii) the
growing demand for high speed
bandwidth connectivity to schools and
libraries, both of which will lead to
increasing monthly recurring charges for
WAN and Internet connections. The
increase in monthly recurring charges
for WAN and Internet connectivity will
come from schools and libraries that
already have connections capable of
meeting E-rate connectivity targets and
from those that are newly able to
purchase high-speed connections as a
result of the changes to the E-rate
program that we adopt today. Moreover,
by targeting funding to Wi-Fi in the Erate Modernization Order and extending
the budgets for internal broadband
connections in this Order, we will
ensure that more schools and libraries
have robust internal connections, which
will fuel their demand for high-speed
WAN and Internet connectivity. Taking
E:\FR\FM\04FER1.SGM
04FER1
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
into account data in the record and the
anticipated savings from steps we have
taken to refocus E-rate funding on
broadband and encourage program
efficiencies, we discuss these increasing
costs for category one services below.
1. Projecting Schools’ and Libraries’
Future Connectivity Demands
96. We first evaluate the future
connectivity demands of schools and
libraries, both in terms of their needs for
new infrastructure and their needs for
services provided over that
infrastructure. On the one hand,
stakeholders report that prices per
megabit for high-speed broadband have
consistently declined each year. At the
same time, as demonstrated below,
increases in bandwidth demand greatly
offset this decline in per megabit
pricing; thus, the total amounts paid by
schools and libraries for their recurring
monthly broadband services will
continue to increase. Indeed, in a recent
survey of school district administrators
and school technology leaders
conducted by CoSN, many schools
signaled that they would need more
bandwidth in the very near future. For
example, 83 percent of respondents
expect to need additional bandwidth
over the next three years and almost
two-thirds report that they do not have
sufficient bandwidth for the next 18
months. Moreover, the schools’
anticipated demand is for significantly
greater bandwidth. Over the next 18
months, 25 percent of respondents
expect 100 to 500 percent bandwidth
growth and another 24 percent expect
20 to 100 percent bandwidth growth.
97. By working to ensure that schools
and libraries have access to affordable
high-speed broadband connectivity, we
also contribute to their increase in
demand for those high-speed
connections. For example, our
commitment to consistently provide at
least $1 billion in funding for school
and library Wi-Fi networks will fuel
additional usage and demand. As
schools and libraries deploy
increasingly robust Wi-Fi networks, the
ability of more students, teachers and
library patrons to use their schools’ and
libraries’ internal networks will require
the delivery of greater bandwidth to
those schools and libraries. For
instance, data from North Carolina
demonstrate that some school districts
are seeing Internet bandwidth usage
growth of nearly 50 percent on an
annual basis, regardless of whether the
school is implementing a one-to-one
device deployment initiative, is several
years into such a program, or lacks a
specific program. Similar data from
Washington indicate that average
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
annual usage growth was over 40
percent from 2009 and 2014.
98. In addition, earlier in this Order
we adopt several policy and
administrative changes that will provide
a range of options to support more
applicants’ efforts to obtain sufficiently
robust broadband connectivity to their
buildings. Encouraging schools and
libraries to undertake those types of
projects and as a result closing the gap
between those schools and libraries
with high-speed connections and those
without will further increase the
demand for E-rate support. The extent to
which we are able to achieve the first
goal that we set out for the E-rate
program—ensuring affordable access to
high-speed broadband sufficient to
support digital learning in schools and
robust connectivity for all libraries—is
highly dependent on how much
category one funding is available for
schools and libraries to pay for the
upfront deployment costs of scalable
connections to currently unserved and
underserved schools and libraries.
While we take steps above to encourage
such deployment, the record clearly
demonstrates that the amount of money
needed for such deployment is closely
linked to the number of additional
schools and libraries that get connected
to high-speed broadband.
99. Based on the data in the record,
we find that over a third of schools do
not have access to fiber to the building,
and an even greater percentage of
libraries lack high-speed connectivity.
While the dataset underlying our
calculations on fiber access does not
contain connectivity data from every
school and every library across the
nation, it is an unprecedented and rich
source of information about school and
library connectivity. Stakeholders have
submitted data on existing connectivity
since the beginning of this proceeding
in the middle of 2013, and in August,
Commission staff published the Fiber
Connectivity Maps, which continue to
be updated with new data. We therefore
disagree with commenters that argue
that we should wait for additional data
on the fiber connectivity gap or that the
gap is so small that it does not require
additional funding to bridge it. Based on
the many sources in the record agreeing
that there is a significant connectivity
gap to close, this dataset provides a
reasonable baseline on which to rely in
order to ensure the E-rate cap is set
sufficiently high to provide certainty on
future availability of funding necessary
to achieve long-term connectivity
targets.
100. Based on the findings set out
above, the record shows the costs for
category one services will increase over
PO 00000
Frm 00081
Fmt 4700
Sfmt 4700
5975
the next five years as more schools and
libraries get access to high-speed
connections and bandwidth demand
continues to increase. We have an
obligation to balance having a specific,
predictable, and sufficient support
mechanism with our ‘‘responsibility to
be a prudent guardian of the public’s
resources.’’ Using estimates in the
record on the costs for category one
recurring and non-recurring costs
consistent with our findings above, we
balance these two concerns by setting a
cap on the E-rate program that provides
sufficient certainty of availability of
funds over the next five funding years,
while limiting the impact on end users
in the near-term.
101. Commenters submitted two cost
estimates on connectivity to schools and
libraries into the record: The ESH/CoSN
Connectivity Model and the SHLB
Coalition Model. The ESH/CoSN
Connectivity Model provides a
projection of both recurring and nonrecurring costs for public schools to
meet the connectivity targets over five
years. The model takes into account
data on current connectivity, predicted
bandwidth demand growth, declining
recurring prices per megabit, and
estimated non-recurring prices to close
the gap of schools without access to
high-speed connectivity. It also
accounts for variation in connectivity
needs of differently-sized schools. Using
these data, it estimates the cost for five
different scenarios, projecting differing
costs depending on the number of
schools that become connected. ESH
also filed a supplementary analysis of
the recurring costs for private schools
and libraries. The SHLB Coalition
Model, prepared by CTC Technology &
Energy, sets out an estimate of capital
expenditures needed to connect fiber to
unserved, eligible public schools,
private schools, and libraries. Using an
engineering-based approach, the model
divides the nation into eight different
standardized geographies, ranging from
dense urban areas to isolated schools in
desert areas. Their model then projects
a low and a high estimate for nonrecurring costs to connect public and
private schools in each of these different
geographies, and a separate estimate for
the costs to connect libraries.
a. Recurring Costs
102. We first consider the modeled
recurring costs for high-speed
connectivity. The ESH/CoSN
Connectivity Model addresses recurring
costs for public schools, and its analysis
is consistent with other evidence in the
record. For each of its five funding
scenarios, the model accounts for
differing bandwidth needs by school
E:\FR\FM\04FER1.SGM
04FER1
5976
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
district size, service mixes, and pricing.
Consistent with the data in the record,
it takes into account an annual decline
in per megabit pricing of approximately
10 percent and an annual increase in
bandwidth demand of up to 50 percent.
As a result, it projects an increase in
pre-discount recurring costs from
approximately $2.1 billion in funding
year 2015 to $2.8 billion in funding year
2018 for public schools.
103. We next turn to the recurring
costs for private schools and for
libraries. In a supplemental analysis,
ESH estimates that it will cost $446
million annually in pre-discount
recurring costs for private schools by
funding year 2018. For libraries, ESH
projects $298 million annually in prediscount recurring costs based on its
pricing assumptions for public schools.
Adding these estimates to the public
school recurring projection, the sum of
the projections for funding year 2018 of
total recurring costs rises to $3.60
billion. We increase this funding year
2018 estimate by nine percent in order
to project costs over the five-year period
for which we have set connectivity
targets (funding years 2015 to 2019).
The resulting projection for recurring
pre-discount costs for public schools,
private schools, and libraries in funding
year 2019 is $3.92 billion. However, as
discussed below, ESH also assumes that
policy decisions can drive cost-efficient
purchasing which will reduce these prediscount costs.
104. In addition to recurring costs for
high-speed connectivity, there will also
be savings of over $3 billion in the next
five years to the E-rate program due to
the phase down of voice services.
Commenters point out that additional
savings are possible. The post-discount
costs to the E-rate fund are estimated to
decrease from approximately $450
million in funding year 2015 to
approximately $25 million in funding
year 2018. We acknowledge these costs
to the program over the next four
funding years.
b. Non-Recurring Costs
105. We next review the estimates in
the record of the non-recurring costs, or
capital expenditures, that are needed to
connect schools and libraries to highspeed broadband meeting the program’s
connectivity targets over the next five
years. The ESH/CoSN Connectivity
Model includes an estimate for new
builds that are paid for through
recurring charges. By doing this, it
recognizes that many schools and
libraries pay a monthly price that
includes both the capital deployment
costs and the ongoing operational costs.
At the same time, the models provide
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
projections of one-time costs that would
be sufficient to close the gap. While
there may be applicants or service
providers that prefer to include the
capital costs as a portion of the annual
price for the life of the contract, the
ESH/CoSN Connectivity Model provides
a way to separate out these capital costs
for the schools located in the most
expensive areas, where the higher cost
of buildout is more likely to require
additional special construction charges.
The changes we adopt in Section II will
provide greater opportunities for
applicants and service providers to take
advantage of special construction. The
ESH/CoSN Connectivity Model
demonstrates that the cost to the
program increases as a greater
percentage of schools get high-speed
connections. To connect between 99.7
and 100 percent of public schools with
more than 100 students, the ESH/CoSN
Connectivity Model provides a range of
non-recurring pre-discount costs of
between $600 and $810 million
annually if divided evenly over the next
five funding years.
106. These projections for public
schools costs are generally consistent
with the cost estimates provided by the
SHLB Coalition for both public and
private schools. The SHLB Coalition
Model provides a low and a high
estimate for non-recurring costs for fiber
deployment to both public and private
schools that would range from $800
million to $1.15 billion in pre-discount
costs if divided evenly over the next five
funding years. It also projects
approximately $135 million annually
over five funding years to connect
unserved libraries across the country to
fiber. The record indicates that a
reasonable estimate of non-recurring
pre-discount costs for both schools and
libraries is between $935 million and
$1.29 billion annually over five years.
2. Driving Down Category One Prices
Through Efficiencies
107. We also conclude that recent
program changes will result in an
additional reduction in the cost to the
Fund as applicants have more
opportunities to find cost-effective
options. We strongly agree with
commenters that argue that
programmatic change, further
streamlining, and continuing efforts to
reduce waste, fraud, and abuse, such as
greater enforcement of the lowest
corresponding price, is needed to
produce savings to the E-rate program.
While the precise level of savings from
cost efficiencies is difficult to predict,
there is record support for a finding that
they could achieve savings of as much
as 10 to 25 percent on the cost of
PO 00000
Frm 00082
Fmt 4700
Sfmt 4700
broadband. ESH provides an analysis of
the potential impact of several different
policy scenarios that each could result
in significant pricing efficiencies, such
as equalizing the treatment of lit and
dark fiber and increasing pricing
transparency. Similarly, increased
planning and purchasing at the state
level has also been shown to result in
greater bandwidth at lower per-megabit
prices, which is an added benefit of
increasing state involvement in the Erate program by providing a bump in
support for infrastructure upgrades
where states provide additional support.
Because the record demonstrates that
our various changes will result in
efficiencies lowering program costs, we
find it reasonable to assume savings of
up to 15 percent of projected demand
for category one costs due to our
reforms.
C. Adjusting the E-Rate Cap To Provide
Certainty of Sufficient Available
Funding To Achieve Program Goals
108. To ensure sufficient funding is
available over the next five years to
meet our program goals and
connectivity targets, we adjust the E-rate
cap to $3.9 billion plus annual
inflationary changes. Raising the annual
E-rate funding cap to $3.9 billion will
allow us to meet our target of providing
at least $1 billion in category two
support annually while fully funding
category one demand, consistent with
the cost estimates modeled by
commenters and partially offset by
potential efficiencies. There is wide
support in the record for an increase in
E-rate funding to help schools and
libraries meet the program’s
connectivity targets, and we find that
raising the cap to $3.9 billion will
ensure a specific, sufficient, and
predictable level of funding available as
schools and libraries seek support for
robust Wi-Fi networks within their
buildings and seek high-speed
connections to their buildings for years
to come.
109. In addition to making it possible
to close the high-speed connectivity
gap, raising the annual cap to $3.9
billion will provide certainty about the
availability of funding for those
applicants planning now to purchase
high-speed broadband connectivity to
schools and libraries. It will also
provide certainty about the availability
of funds for applicants seeking to take
advantage of the changes to category
two funding by adjusting the cap in
funding year 2015. Commenters are in
agreement that there is pent up demand
for category two services, and providing
more than the $1 billion target level in
support for internal connections will
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
allow more applicants to close their WiFi gaps sooner and more efficiently. The
availability of additional funds should
allay concerns that applicants below the
highest discount bands will not have
access to category two funds in the near
future. For these two reasons, we also
disagree with commenters that urge us
to delay adjusting the cap until all
program changes have been
implemented or more data is available.
110. Raising the annual E-rate cap to
$3.9 billion allows us to provide
certainty to the applicant community,
allowing local decision-makers to
proceed at the pace that best serves their
students and patrons. In doing so, we do
not expect that program demand will
immediately reach that funding level.
Indeed, there is no way to perfectly
predict what precisely individual
schools and libraries will seek support
for or when unserved schools will
gather the resources to pay the nondiscounted portion of special
construction charges. For instance, we
have already identified sufficient
unspent funds to be confident in
funding for category two services in
funding years 2015 and 2016, and it will
take significant planning and time to
take advantage of the measures set out
in Section II. However, the record is
clear that demand for and costs
associated with high-speed broadband
services will continue to grow, and we
find that raising the cap now to $3.9
billion will provide needed room for
future E-rate funding needs. We balance
this cap increase with our efforts to
ensure fiscal prudence and we direct
USAC to collect program funds based
only on actual projected demand rather
than collecting the full $3.9 billion
without regard to applicant needs.
Providing USAC with this flexibility
will allow the Fund to accommodate
fluctuations or changes in actual
demand in the coming years without
over-collection of funds. In order to
facilitate this process and consistent
with program practice, we amend the
rules to only allow applications to be
filed within the filing window. We
disagree with commenters that argue
that we should wait to address longterm funding needs until the Federal
State Joint Board makes
recommendations on contributions
reform. Because demand for category
one support will not increase
dramatically in the short-term, we do
not see a benefit in delaying this change
when we have the ability to provide
certainty about future availability of
funding to schools and libraries making
plans about connectivity for the next
five years.
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
111. Additionally, we recognize that
end users ultimately bear the cost of
supporting universal service, through
carrier charges. However, we must
balance our need for fiscal prudence
with the demonstrated needs of the Erate program, for which we have a
statutory mandate to ‘‘establish rules
. . . to enhance, to the extent
technically feasible and economically
reasonable, access to advanced
telecommunications and information
services.’’ We adopted the program goal
of ensuring affordable access to highspeed broadband sufficient to support
digital learning in schools and robust
connectivity to all libraries recognizing
the critical role the E-rate program plays
in the lives of students and
communities. Having already taken
steps to focus support on high-speed
broadband and set out measures to
increase cost efficiencies, this cap
adjustment provides E-rate applicants
with the certainty needed to plan how
to increase connectivity to schools and
libraries in the most cost-effective
manner. Finally, setting a funding level
that has sufficient flexibility for these
plans should also drive long-term
efficiencies in the program.
112. Finally, some commenters
recommend that the Commission double
the cap, which is currently $2.4 billion,
to meet recent demand. We decline to
raise the cap to $4.8 billion based on
recent demand. Since the funding year
2014 application window closed, we
have modernized the program to focus
support on high-capacity broadband
services by eliminating support for
legacy services, beginning with the
phase out of support for voice services
and imposing budget discipline on
category two services. Raising the cap
based on demand for a differently
structured program would not make
sense. We find instead that a program
cap set using projected costs for the
services the program now supports and
taking into account efficiencies through
recent policy changes is a more
appropriate means to measure necessary
program size and ensure we exercise
fiscal prudence.
IV. Establishing a Performance
Management System at USAC To
Advance the Goals of the E-Rate
Program (WC Docket 13–184)
113. In this section, we direct USAC
to develop a robust performance
management system to advance the
goals we adopted for the E-rate program
in the E-rate Modernization Order and
to analyze, on an ongoing-basis, the
effectiveness of USAC’s administration
of the E-rate program. Performance
management is a process by which
PO 00000
Frm 00083
Fmt 4700
Sfmt 4700
5977
entities focus their resources on the
achievement of strategic goals and
objectives, including by the
development of long-term strategic
plans and by the rigorous tracking of
performance data. As the administrator
of the E-rate program, USAC’s
performance is integral to the success of
the program. Moreover, as a result of the
transparency requirements we adopted
in the E-rate Modernization Order, the
improved data collection that will result
from that order, and our direction to
USAC to modernize its information
technology (IT) system, USAC will have
access to information that will be
crucial in measuring our success toward
reaching the E-rate program goals and it
is essential that they make information
available to schools, libraries, the
Commission, and all other stakeholders
interested in updates about our progress
towards meeting those goals. Therefore,
in developing and implementing its
performance management system, we
direct USAC to work with staff from
OMD and the Bureau to formulate a
detailed plan that includes both
immediate and long-term metrics
directed at finding new ways to further
the E-rate program goals.
A. Components of the Performance
Management System
114. We delegate to the Bureau and
OMD oversight of the development and
implementation of USAC’s performance
management system. In addition to
directing USAC to develop a
performance management system for its
administration of the E-rate program, we
provide direction on a range of
components that USAC must include in
the system. At the same time we
recognize that USAC’s performance
management system must be flexible
and adaptive, and we expect USAC, in
consultation with staff of the Bureau
and of OMD, to continue to update its
performance management system, as
appropriate.
115. Impact of E-rate modernization.
In this Order, as we did in the E-rate
Modernization Order, we adopt a
number of programmatic changes aimed
at reaching the goals we adopted for the
E-rate program. We have directed
USAC, working with Commission staff,
to implement those changes.
Recognizing that some of those changes
will be more successful than others, and
that future Commissions will want to be
able to evaluate the success of those
initiatives, we direct USAC to
incorporate in its performance
management system an ongoing analysis
of the impact of those changes on
reaching the goals that we adopted for
the E-rate program in the E-rate
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
5978
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
Modernization Order, as well as USAC’s
success at implementing those changes.
116. Impact of and further
improvements to USAC’s updated IT
system. USAC’s performance
management system should also include
ongoing evaluation of USAC’s success
in upgrading its IT system, and moving
towards all-electronic filings by E-rate
stakeholders and all-electronic
notifications by USAC. As we directed
in the July E-rate Modernization Order,
all applicants must file electronically
their applications for E-rate support for
this coming funding year. As USAC
considers what more it can do to ease
the administrative burden on applicants
through its upgraded IT system, it must
develop a plan to migrate the filing of
all E-rate appeals and invoices to
electronic formats, and should make
that possible by or before the start of
funding year 2017.
117. Simplifying calculation of
discount rates. To further streamline the
application process, particularly for
school districts and library systems, we
instruct USAC, as part of its
performance management system, to
enable applicants to more easily manage
the discount calculation process in
advance of the application filing
window. USAC should establish the
appropriate timeframe for billed entities
to update their discount information in
USAC’s online system, as well as a
process for billed entities to certify to
the accuracy of such information prior
to the opening of the application
window. USAC’s system should then be
able to assist applicants in determining
their discount rate based on such
information, and pre-populate that
information based on the information
provided by the billed entities. At the
same time, we remind applicants that
they remain responsible for ensuring
that they are seeking the appropriate
discount rate and they are responsible
for repayment in the event of any error
in the calculation of the discount rate
whether caused by the applicant or by
USAC.
118. Online competitive bidding. In
order to assist applicants in maximizing
the cost-effectiveness of spending for Erate supported services, as part of its
performance management system,
USAC should explore the possibility of
providing online tools to improve the
competitive bidding process. We agree
with commenters who contend that the
competitive bidding process should
encourage and facilitate participation in
the E-rate program by service providers.
We therefore direct USAC to work with
OMD and the Bureau to determine the
feasibility and effectiveness of online
tools to assist applicants with the
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
competitive bidding process, including
online bid and review tools to assist
applicants in obtaining multiple bids
and selecting the most cost-effective
services, and to reduce administrative
costs and burdens associated with
competitive bidding. To expose
applicants to more purchasing options,
USAC should also explore the provision
of tools to promote and facilitate
increased involvement by service
providers, and to provide more visibility
into options for purchasing the specific
products and services for which
applicants are requesting proposals in
ways that are consistent with fair and
open competitive bidding requirements
that are fundamental to the E-rate
program.
119. Improving the administrative
experience of program participants. As
part of its ongoing work to make the Erate application process and other E-rate
processes faster, simpler, and more
efficient USAC should assess
organizational options for placing
greater emphasis on improving the endto-end administrative experience of
program participants, including
applications, appeals, invoices, and
audits. For example, USAC should
assess the value of designating senior
management directly responsible to the
CEO to be responsible for championing
outreach and simplification strategies to
benefit program participants and to
ensure that as much time, energy, and
financial resources as possible go to
achieving program goals rather than to
cumbersome administrative processes.
USAC should also solicit input from
program beneficiaries and other
stakeholders and use that input in
evaluating, on an ongoing basis, its
provision of customer support to E-rate
applicants. USAC should incorporate
performance metrics related to customer
service into its overall performance
management plan, and work with
Commission staff to identify
improvement recommendations. These
recommendations should be considered
at the highest levels of management and
given the appropriate consideration for
implementation, consistent with
appropriate processes for coordination
and approval by the Commission of
review procedures, and the success of
improving the customer service
experience should be a key component
of USAC’s performance management
system.
120. Maximizing the cost-effectiveness
of E-rate supported purchases. As part
of its performance management system,
USAC should analyze how its
administration of the program can
further the goal of maximizing the costeffectiveness of E-rate supported
PO 00000
Frm 00084
Fmt 4700
Sfmt 4700
purchases. For example, USAC should
analyze its approach to costeffectiveness reviews, and find ways to
share information with applicants and
vendors about its approach to such
reviews, in order to encourage costeffective purchasing by applicants. We
direct the Bureau and OMD to oversee
USAC’s interpretation and application
of cost effectiveness to ensure alignment
with the program goals we have set,
with particular emphasis on ensuring
the cost effectiveness of the new
methods of supporting category one and
category two services provided in the Erate Modernization Order as well as this
Order.
121. USAC should also explore ways
to assist schools and libraries in
receiving access to neutral, expert
technical assistance. We agree with
those commenters who argue that
technical assistance is critical to
building an efficient internal network.
We have heard, however, from many
parties that such technical experience is
often not available within a school
district or library system, especially
those located in rural areas. In situations
where affordable technical assistance is
not available, USAC, as the expert
administrator of the program, has an
important role to play given its focus on
efficiently serving applicants while
verifying compliance with program
rules. In keeping with the
recommendations of many commenters,
we encourage USAC to work with
existing entities at the state and
municipal level to develop best
practices and supporting technical
information, and to consider developing
its own in-house advisors to provide
this support. We direct USAC to work
with OMD and the Bureau to set the
financial and operational parameters for
providing such assistance and to
provide guidance to applicants on the
role and responsibilities of USAC when
offering such assistance. As part of that
oversight, we also direct the Bureau,
working with OMD and USAC, to
develop reference prices or other
guidelines for E-rate supported
purchases that could provide guidance
both to applicants about prices that are
likely to be considered cost-effective
and to USAC in prioritizing applications
for additional scrutiny for costeffectiveness.
122. Data tracking and analysis. As
part of its performance management
system, USAC should review its data
tracking and reporting capabilities to
confirm that it tracks and reports the
data necessary to measure progress
toward E-rate program goals. We direct
USAC, working with OMD and the
Bureau, to create a comprehensive and
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
efficient data reporting structure, to
develop IT tools that facilitate analysis
of all program data, and to increase
public availability of such data to
increase transparency and enable
beneficiaries and other stakeholders
both to assess progress by schools and
libraries in obtaining access to highspeed broadband connectivity and to
obtain detailed information from which
to determine the cost effectiveness of
spending for E-rate products and
services by beneficiaries.
123. Increased program efficiencies.
USAC also should review its pre- and
post-commitment procedures and
identify additional opportunities for
data analysis, improved compliance
oversight, and realization of increased
efficiency and streamlining of processes
for the review of applications and the
commitment and disbursement of funds.
This review should encompass both
USAC’s direct staff as well as contract
services such as those used in
application in-take and processing. We
direct USAC to work with Commission
staff to identify areas in which a more
common-sense and flexible
administrative approach would best
advance program goals while still
remaining consistent with program rules
set by the Commission.
124. Financial management. Finally,
it is crucial that USAC include financial
management as a component of its
performance management system. The
Commission has directed USAC to
prepare financial statements for the
USF, including the E-rate program,
consistent with generally accepted
accounting principles for federal
agencies (Federal GAAP) and to keep
the USF in accordance with the United
States Standard General Ledger
(USSGL). Working with OMD and other
Commission staff, USAC should review
and update its processes for evaluating
and recommending the amounts that
should be reserved to fund pending
appeals, pending applications, and
undisbursed funding commitments. We
note that, for those appeals that may
require additional commitments and
disbursements in the unlikely event that
the amounts held in reserve are not
sufficient, the Commission has
authorized USAC to use funds budgeted
for subsequent funding years to fund
discounts for successful appeals from
prior funding years. For the pending
applications and undisbursed funding
commitments, we similarly authorize
USAC to use funds budgeted for
subsequent funding years to fund
discounts for those applications and
undisbursed funding commitments from
prior funding years, in the unlikely
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
event the amounts held in reserve are
not sufficient.
B. Expanding Commission Oversight of
USAC’s Administrative Performance
125. We also delegate authority to the
Bureau and OMD to ensure that
beginning in funding year 2015 USAC
conducts an annual performance review
of progress against program goals and
creates a forward-looking strategic plan
for how USAC will expand and sustain
performance improvements. The Bureau
and OMD should work together to assist
USAC in developing the measures that
should be included in USAC’s annual
performance review. USAC must report
at a minimum on the following
components of the program’s
administration: Pending applications;
pending invoices, with specific
information about those that were
delayed or rejected; USAC’s strategy to
reduce any backlog of applications,
invoices or other necessary USAC
approvals for applicant and service
provider changes to requested funding;
and an annual analysis of the program
integrity assurance (PIA) program and
invoicing procedures to determine if
they are properly designed and
calibrated to efficiently process
applications and invoices while
protecting against waste, fraud and
abuse in the program.
126. Additionally, in the E-rate
Modernization Order, we directed
USAC to collect additional connectivity
data from applicants, noting that this
collection will provide useful and
useable information to USAC and to the
Commission about what is working and
what needs to be improved. USAC
should work with Commission staff to
analyze and report the results of this
data collection in this performance
analysis.
V. Filing Deadlines for Appeals
127. In the E-rate Modernization
Order, we revised § 54.719 of our rules
to require parties aggrieved by an action
taken by a division of USAC, including
the Schools and Libraries Division, to
first seek review of that decision by
USAC before filing an appeal with the
Commission. We also explained that
because USAC cannot waive our rules,
parties seeking a waiver of our rules
must seek relief directly from the
Commission or the Bureau. We now
clarify that affected parties have 60 days
from the issuance of the decision to file
an appeal, either with USAC in the case
of requests for review, or the
Commission or Bureau in the case of
requests for waiver. Additionally,
parties that file a request for review with
USAC and receive an adverse outcome
PO 00000
Frm 00085
Fmt 4700
Sfmt 4700
5979
have 60 days from the issuance of that
decision to file a request for review with
the Commission.
VI. Order on Reconsideration
A. Introduction
128. In this section, we address
various petitions for reconsideration of
the E-rate Modernization Order and
provide clarification on several issues
raised by the Verizon Petition. Our rules
allow any interested party to file a
petition for reconsideration, and
provide that a petition for
reconsideration which relies on facts or
arguments not previously presented to
the Commission shall be granted only
where the facts or arguments relate to
new events or changed circumstances,
were unknown and not readily
ascertainable by petitioners, or the
Commission determines that the public
interest requires them to be
reconsidered.
129. Having considered the petitions
for reconsideration, and all oppositions
and replies filed in response to those
petitions, we:
• Grant in part the petitions for
reconsideration filed by SECA, the Utah
Education Network, NTCA/Utah Rural
Telecom Association, and the West
Virginia Department of Education
(WVDE) seeking reconsideration of the
areas that we have designated as urban
for purposes of the E-rate program;
• deny USTelecom’s request that we
reconsider our decision to change the Erate program’s document retention
period from five years to 10 years;
• deny requests by SECA, Verizon,
and WVDE that we phase out E-rate
support for components of telephone
service and voicemail on the same
schedule as voice service, and Verizon’s
request that we reconsider our decision
to eliminate funding for email offered as
part of an Internet access service;
• deny requests by Verizon, SECA,
and WVDE that we direct USAC to make
category two funding commitments that
cover multiple-years;
• clarify our cost-effectiveness test for
data plans and air cards for mobile
devices and our cost allocation rules for
circuits that carry both voice and data
traffic as requested by Verizon; and
• clarify for Verizon the E-rate
Modernization Order’s category two
funding availability and policy on
applicant prioritization. We also clarify
for Verizon that the $150 budget over
five years applies to both managed and
non-managed Wi-Fi.
B. Urban and Rural Designations
130. On reconsideration, we modify
§ 54.505(b)(3) of our rules so that
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
5980
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
starting in funding year 2015 an
individual school or library will be
designated as ‘‘urban’’ if located in an
‘‘Urbanized Area’’ or an ‘‘Urban
Cluster’’ with a population equal to or
greater than 25,000, as determined by
the most recent rural-urban
classification by the U.S. Census Bureau
(Census Bureau). Any individual school
or library not designated as ‘‘urban’’ will
be designated as ‘‘rural.’’ We make this
change to our rules on reconsideration
because petitioners have convincingly
demonstrated that numerous schools
and libraries located in small towns and
remote areas where it is more expensive
to receive E-rate funded services would
be classified as urban and ineligible for
additional E-rate support provided to
rural applicants under the urban
designation we adopted in the E-rate
Modernization Order. In making this
change on reconsideration, we grant in
part the petitions for reconsideration
filed by SECA, NTCA/Utah Rural
Telecom Association, WVDE, and the
Utah Education Network. While we
change how individual sites are
classified as urban or rural, we retain
the current rule that any school district
or library system must have a majority
of schools or libraries in a rural area that
meets our new urban/rural definition to
qualify for the additional rural discount.
131. In the E-rate Modernization
Order, we made two changes to the way
applicants determine whether they are
eligible for the rural discount. We first
adopted the Census Bureau definition of
rural and urban which classifies only
communities with fewer than 2,500
people as rural. Under the Census
Bureau definition, the term ‘‘urban’’
includes ‘‘urbanized areas,’’ which are
defined as the densely settled core of
census tracts or blocks with at least
50,000 people, and ‘‘urban clusters,’’
with 2,500 to 50,000 people, along with
adjacent territories containing nonresidential urban land uses as well as
territory with low population density
included to link outlying densely settled
territory with the densely settled core.
‘‘Rural’’ encompasses all population,
housing, and territory not included
within an urban area. We found that the
adoption of the Census Bureau
definitions of urban and rural was
simpler for applicants than other
alternatives and the data more current
than the previous outdated definition.
Also in the E-rate Modernization Order,
we changed the criteria a school district
or library system must use to determine
whether it qualifies as rural for the Erate program, concluding that school
districts and library systems would only
be eligible for the rural discount if more
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
than 50 percent of individual schools or
libraries within that district or system
are classified as rural.
132. As petitioners have explained,
the population cutoff of 50,000 people
combined with the requirement that a
majority of all schools or libraries that
are part of a school district or library
system be classified as rural in order to
qualify the school district or library
system for the additional rural discount
rate leaves a substantial number of
school districts and library systems with
schools or libraries in sparsely
populated areas ineligible for the
additional rural funding. For example,
petitioners point out that as a result of
the definition adopted in the E-rate
Modernization Order:
• Schools in St. Mary’s, West
Virginia, a community with 1,860
people that is 20 miles from the nearest
urbanized area, are part of the Pleasants
County School District that, under the
new rural definition, would be
reclassified as urban.
• School districts in Iowa would be
newly designated as urban, including
the Bellevue Community School
District, with an enrollment of only 700
students and located in Bellevue, a town
of 2,543 people.
• Some of the most remote areas of
the country situated in Alaska,
including the communities of Barrow,
Bethel, Ketchikan, Kotzebue, Nome and
Sitka, have school districts that would
be reclassified as urban.
133. Three of the four petitions for
reconsideration on this issue initially
requested that the definition of rural
include all schools and libraries in
‘‘urban clusters.’’ However, those
petitioners modified their requests and
joined with the fourth petitioner, the
Utah Education Network, and a
constituency of organizations
representing schools, libraries, E-rate
coordinators, rural telecommunications
carriers, and other E-rate stakeholders,
to recommend that the Commission
consider a population threshold of
25,000 or greater as urban, and all other
areas as rural for purposes of the E-rate
program. No parties in the record have
opposed this recommendation.
134. We agree with petitioners and
other stakeholders that this new
definition of rural is appropriate for
ensuring support is targeted to areas
where E-rate supported services are
more costly. Other federal programs
have used a similar population cutoff to
designate whether an area is rural or
urban. For example, the Commission
adopted 25,000 as the population
threshold when it revised its rural area
definition for the rural health care
universal service support mechanism
PO 00000
Frm 00086
Fmt 4700
Sfmt 4700
(Rural Health Care Program) in 2004,
essentially including as rural all census
tracts that do not contain any
population concentrations greater than
25,000. In adopting the Rural Health
Care Program’s rural definition, the
Commission noted that ‘‘[w]hile
choosing the threshold is not an exact
science, we believe urban areas above
this size possess a critical mass of
population and facilities.’’ In looking to
other agencies, the U.S. Department of
Education’s National Center for
Education Statistics (NCES) classifies
‘‘small towns’’ as any incorporated or
Census-defined place with fewer than
25,000 people. Some other federal
programs have established even broader
definitions of rural than the one we
adopt today. For example, the 2014
Farm Bill included a provision related
to the U.S. Department of Agriculture
Rural Housing Program that increased
the minimum rural population
threshold for that program from 25,000
to 35,000.
135. Modifying our definition to treat
areas with populations of less than
25,000 as rural achieves the policy
objectives established in the E-rate
Modernization Order by creating a rural
definition based on regularly adjusted
U.S. Census data while remaining
simple and easy to administer. The
Census Bureau already provides a
spreadsheet of all urbanized areas and
urban clusters with the populations of
the towns and cities listed. To further
eliminate any confusion regarding
implementation of this new definition,
the Commission will direct USAC to
identify the areas that are rural for the
purposes of the E-rate program and post
a tool on its Web site as soon as it is
practically possible. Going forward, we
direct USAC to update the tool as
necessary to reflect the most recent
decennial census data and nationwide
population estimates and update its
system within 90 days of any change.
However, we once again remind
applicants that they have an obligation
to ensure that they are seeking the
correct discount rate.
136. In taking this action, we find that
any additional burden on the Fund is
justified by the overwhelming evidence
in the record demonstrating that the
rural definition adopted in the E-rate
Modernization Order excluded many
applicants located in areas that are more
expensive to serve because of their
remote geography. Further, we believe
that this change, by ensuring that many
more schools and libraries have the
benefit of additional funding to
compensate for their rural geography,
fully satisfies section 254(h)(1)(B) of the
Act, which requires that the E-rate
E:\FR\FM\04FER1.SGM
04FER1
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
discount must be an amount that is
‘‘appropriate and necessary to ensure
affordable access to and use of such
services.’’
137. Finally, we take this opportunity
to eliminate an obsolete reference to the
definition of what constitutes a rural
area for the purposes of the E-rate
program in § 54.5 of our rules. The Erate definitions are properly found at
54.505(b) of our rules. However, the
‘‘Terms and definitions’’ section, found
in § 54.5 of our rules, also defines ‘‘rural
area’’ for the E-rate program. While we
could also amend the definition in 54.5
of our rules and make it parallel to the
definition in § 54.505(b), we think that
the better course is to have the
definition only in that section of our
rules that is E-rate specific. We therefore
amend § 54.5 to eliminate the reference
to the E-rate definition of rural.
C. Document Retention Period
138. We deny the USTelecom Petition
seeking reconsideration of our extension
of the E-rate document retention period
from five to 10 years. The arguments
offered by USTelecom were either
sufficiently considered in this
proceeding or do not raise new issues
sufficient to warrant reconsideration. In
the E-rate Modernization Order we
concluded that the current five-year
document retention requirement is not
adequate for purposes of litigation
under the False Claims Act (FCA). We
also explained that a 10-year retention
period will benefit program integrity
and that electronic storage capabilities
will minimize the administrative
burden and cost for applicants and
vendors. This decision is consistent
with our adoption of 10-year document
retention requirements for other
universal service programs in the USF/
ICC Transformation Order and the
Lifeline Reform Order, 77 FR 25609,
May 1, 2012.
139. In its petition, USTelecom argues
that document retention requirements
are not necessary for compliance with
the FCA and that existing case law
‘‘provides no basis for the Commission
to claim a need for extended document
retention periods in order to comply
with the FCA.’’ We find it unnecessary
to reach these arguments because our
decision to adopt a 10-year document
retention period is justified on several
other independent grounds unrelated to
the FCA. These non-FCA grounds are
sufficient in and of themselves to justify
a 10-year document retention period. In
particular, we continue to find that:
• Even outside the FCA context, a
longer document retention period will
help the Commission guard against
waste, fraud, and abuse in the universal
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
service program by ensuring that
evidence will be preserved.
• Congress has imposed no statutory
barrier to recovery beyond five years.
Indeed, the Debt Collection
Improvement Act (DCIA), 31 U.S.C.
3701 et seq., generally directs agencies
to ‘‘try to collect a claim of the [U.S.]
Government for money or property
arising out of the activities of, or
referred to, the agency.’’
140. Other rationales (also unrelated
to the FCA) reinforce our belief that a
10-year document retention period will
help ensure the integrity of the E-rate
program and will assist Commission
investigations into waste, fraud, and
abuse, which may extend beyond a fiveyear period. For instance, Governmentwide regulations known as the Federal
Claims Collection Standards require
agencies to ‘‘aggressively collect all
debts.’’ Extending the retention period
to ten years will assist the agency in
carrying out this objective. Because the
new document retention period is
amply supported by these reasons, we
need not reach USTelecom’s arguments
regarding the FCA.
141. We also reject USTelecom’s
remaining arguments regarding the new
retention period. For instance, the fact
that some other federal programs may
have shorter retention periods does not
require a contrary outcome, particularly
since, as noted above, a 10-year
document retention rule aligns the Erate program with the document
retention requirements of other
universal service programs. Also
unavailing is USTelecom’s argument
that a 10-year document retention
requirement is unnecessary, will impose
significant costs on applicants and
vendors, and is not supported by the
record. We previously considered and
rejected these arguments in this
proceeding. USTelecom cites several
commenters opposed to a longer
document retention period. However,
those commenters either failed to
provide any substantive support for
their opposition to a 10-year
requirement or offered general
arguments about school staff turnover or
shorter state and federal retention
requirements without providing
persuasive support as to why a 10-year
requirement for the E-rate program
would be overly burdensome. In the Erate Modernization Order, we
acknowledged stakeholder concerns
about the potential costs and
administrative burden of a 10-year
retention requirement, but concluded
that those costs and burdens can be
mitigated with electronic storage
capabilities and concluded that any
such costs would be outweighed by the
PO 00000
Frm 00087
Fmt 4700
Sfmt 4700
5981
benefits to the integrity of the program.
We reaffirm that conclusion here.
D. Telephone Service Components,
Voicemail, and Email
142. We deny those portions of the
Verizon and WVDE petitions requesting
us to (i) reconsider our treatment of
telephone service components,
including directory assistance charges,
text messaging, custom calling services,
direct inward dialing (DID), 900/976 call
blocking, and inside wire maintenance,
as part of voice services; and (ii) phase
out support for those services on the
same five-year schedule as voice
services rather than eliminating support
beginning in funding year 2015. We
therefore also deny SECA’s request that
we remove DID numbers from the list of
eliminated telephone components and
instead phase out support for DID
numbers on the same schedule as voice
services. We also deny Verizon’s
requests that voicemail be phased out
on the same schedule as voice service
and that the E-rate program support
email offered as part of an Internet
access service.
143. In the E-rate Modernization
Order we initiated a five-year phase
down of E-rate support for voice
services and eliminated support for
other legacy and non-broadband
services effective for funding year 2015.
We explained that reductions in funding
for voice services and eliminating
funding for telephone components and
non-broadband services was necessary
in order to focus E-rate program
spending on the high-speed broadband
needed by schools to enable digital
learning and by libraries to meet
patrons’ broadband needs.
144. Verizon and WVDE argue that
cost allocating telephone service
components and voicemail from a
typical applicant phone bill will place
a substantial burden on applicants,
service providers, and USAC reviewers
that is not justified by the corresponding
savings to the E-rate program. SECA
argues that DID numbers, unlike the
other telephone service components no
longer eligible for E-rate support, are an
essential feature of voice service and
should therefore be placed on the same
phase down schedule as voice services.
145. The arguments and facts
presented in the Verizon, WVDE, and
SECA petitions were previously
considered in this rulemaking and do
not merit reconsideration of our
conclusions. In the E-rate
Modernization NPRM, we indicated our
intention to refocus E-rate funding on
high-speed broadband services and, as
part of that effort, proposed to eliminate
E-rate support for telephone service
E:\FR\FM\04FER1.SGM
04FER1
5982
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
components, voicemail, and email. With
respect to the components of telephone
service, in the E-rate Modernization
Order, we acknowledged that
eliminating support for these services
would require cost allocation but
concluded that it would not be overly
burdensome for applicants to seek
funding for only the voice service
component of their telephone service.
We concluded that the benefits of
streamlining voice service support by
removing these services outweighed the
additional burden on applicants of cost
allocation for the next few funding
years. We also noted that commenters
that recommended a longer phase down
period for voice services did not
recommend a commensurate phase
down for telephone service components
or argue that those services required a
phase down. Similarly, eliminating
support for email services will require
cost allocation for email offered as part
of an Internet access service but we
believe that the benefits of focusing
funding on high-speed broadband
justify the minimal cost allocation
burden on applicants. Consistent with
the third goal that we adopted in the Erate Modernization Order, making E-rate
processes fast, simple, and efficient, and
in order to reduce the administrative
burden on applicants, we expect that
USAC will, working with the Bureau,
establish guidelines for how applicants
can proportion the cost of services on
telephone bills in order to cost-allocate
ineligible telephone service components
and voicemail.
E. Conditional or Multi-Year
Commitments
146. We deny the petitions filed by
SECA, Verizon, and WVDE to the extent
they request that the Commission
reconsider the approach to category two
funding adopted in the E-rate
Modernization Order. SECA, Verizon,
and WVDE do not raise new facts or
arguments that warrant Commission
review of the E-rate program’s
prohibition on multi-year funding
commitments.
147. In the E-rate Modernization
Order, we created a mechanism for
focusing funding on internal
connections, including Wi-Fi, to allow
schools and libraries to have affordable
access to high-speed broadband
connections needed for digital learning.
To provide broader and more equitable
support for category two services, the Erate Modernization Order created fiveyear budgets for applicants that seek
and receive category two funding in
funding years 2015 and 2016. In the
Second E-rate Modernization Order, we
extend the five-year applicant budgets
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
for category two services for three
additional years. While we allow
category two applicants to enter into
multi-year agreements, we declined to
make multi-year commitments
available.
148. We deny the Verizon Petition
with respect to its proposal to allow
multi-year commitments for managed
Wi-Fi services as a way to remove
uncertainty about whether funding will
be available in the later years of a fiveyear category two budget cycle. In the Erate Modernization Order we considered
and rejected arguments in favor of
multi-year commitments in the E-rate
program. As we explained in that order,
obligating funds in advance of their
availability would be detrimental to the
administration of the program. We also
explained that the multi-year
application process we created in that
order should allow applicants to
achieve many of the efficiencies of a
multi-year funding commitment.
Furthermore, petitioners’ concerns
about the uncertainty of funding for
category two services should be
alleviated by the actions we have taken
in the Second E-rate Modernization
Order to raise the cap, and to extend the
category two budget approach to cover
five funding years. Therefore, we find it
is in the best interest of the Fund to
continue to have the Administrator
obligate funds one funding year at a
time.
149. We also deny SECA and WVDE’s
proposal that we provide conditional
funding commitments to all valid
applications for category two funding.
Under this proposal, if funding is
unavailable in the year in which it is
sought, rather than being denied
support, an applicant would receive a
commitment of future support for those
services. We find that this approach is
not necessary because uncertainty about
funding for category two services should
be alleviated by the actions we have
taken to raise the annual E-rate cap and
extend the category two budget
framework for the next three years.
Further, if there comes a time that we
are unable to meet the demand for
category two support, instead of
providing predictability for applicants,
SECA’s and WVDE’s proposals would
lead to greater uncertainty, and
administrative complexity because
applicants would not know when they
would receive reimbursement or how
much reimbursement they would
entitled to receive. Under WVDE’s
proposal, applicants would use the
discount rate in effect at the time the
funds become available, meaning
applicants would have to account for
changes in student demographics and
PO 00000
Frm 00088
Fmt 4700
Sfmt 4700
the urban/rural classification that affect
the discount level. Thus, it would be
very difficult for applicants to predict
the level of expected reimbursement
and could lead to budget shortfalls for
applicants expecting a larger
disbursement from the Fund.
F. Clarifications
150. Cost-Effectiveness for Wireless
Data Plans and Air Cards. In response
to Verizon’s request for clarification, we
offer additional guidance on the proper
cost-effectiveness test for data plans and
air cards for mobile devices. When
purchasing any E-rate eligible service,
applicants are required to carefully
consider all bids and select the most
cost-effective service offering, and must
consider price to be the primary factor.
In the E-rate Modernization Order, we
took the opportunity to discuss the
limited circumstances under which we
would find data plans or air cards for
mobile devices to be cost-effective. We
explained that it is generally more costeffective for schools and libraries to
purchase a fixed broadband connection
to the building and a WLAN capable of
providing connectivity to multiple
devices throughout the building.
However, we recognized that there are
circumstances, such as library
bookmobiles or very small schools and
libraries with high connectivity costs,
where individual data plans or air cards
for mobile devices may be the most costeffective solution. We then provided an
example of how applicants could
demonstrate the cost-effectiveness of
data plans or air cards for mobile
devices through comparison of the costs
for a WLAN deployment.
151. Verizon requests clarification
that applicants should compare the cost
of data plans or air cards for mobile
devices to the cost of all components
necessary to deliver connectivity to the
end user device. Verizon also requests
clarification as to whether applicants
may take into account the potential
limited availability of category two
funding when evaluating the cost
effectiveness of individual data plans
and air cards for mobile devices.
152. We agree with the points raised
by Verizon’s first request and clarify
that applicants that seek funding for
data plans or air cards for mobile
devices should compare the cost of all
components necessary to deliver
connectivity to the end user device,
including the costs of Internet access
and connectivity to the school or
library, to the total cost of data plans or
air cards when selecting the most costeffective service option. Schools with
existing fixed broadband connections
should limit this comparison to the
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
recurring cost of their current
broadband connection plus the added
cost of any upgrades to their broadband
connections and any additional or
updated internal connections needed to
deploy a sufficiently robust WLAN with
all capital investments amortized over
their expected lifespan. We also caution
applicants that seeking support for data
plans or air cards for mobile devices for
use in a school or library with an
existing fixed broadband connection
and WLAN implicates our prohibition
on requests for duplicative services. In
circumstances where an applicant
successfully demonstrates that mobile
data plans or air cards are the most costeffective offering, such as a bookmobile
or very small school or library facility,
the impracticality or unusually high
cost of purchasing a fixed broadband
connection to the location should be a
factor in the applicant’s costeffectiveness analysis.
153. We also clarify that an applicant
may not consider whether it is likely to
receive category two E-rate support
when analyzing the cost-effectiveness of
data plans or air cards for mobile
devices. While our rules allow
applicants to consider relevant factors
other than cost as part of the costeffectiveness determination, price must
be the primary factor in an applicant’s
cost-effectiveness determination
regardless of whether the applicant
anticipates receiving category two E-rate
support. Indeed our rules require that
entities use the actual, i.e. pre-discount,
cost of the service offered as a baseline
for comparison, not the cost after the Erate discount is applied.
154. Circuit Capacity Dedicated to
Voice Services. Verizon also requests
that we clarify how the reduced
discount rates for voice services apply
to costs incurred for circuit capacity
dedicated to providing voice services.
We clarify that applicants must cost
allocate charges attributable to voice
services from the cost of all circuits
used for dedicated voice and data
services and that those voice service
charges will be subject to the five-year
voice service phase down. In the E-rate
Modernization Order, we specified that
the five-year phase down of support for
voice services will apply to all
applicants and all costs incurred for the
provision of telephone services and
circuit capacity dedicated to providing
voice services. Verizon seeks general
clarification of the term ‘‘circuit
capacity dedicated to providing voice
services.’’ Verizon also requests specific
clarification of the proper cost
allocation method for voice services on
three types of circuits: (1) A circuit
leased for a district-operated private
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
voice network, (2) a leased WAN circuit
that carries both voice and broadband
traffic, and (3) a circuit that carries both
voice and broadband services. As
discussed below, Commission rules
require applicants to cost allocate
charges attributable to voice services
from the circuit cost in all
circumstances described by Verizon.
155. Under the Commission’s rules, if
a product or service contains both
eligible and ineligible components,
costs should be allocated to the extent
that a clear delineation can be made
between the eligible and ineligible
components. The clear delineation must
have a tangible basis and the price for
the eligible portion must be the most
cost-effective means of receiving the
eligible service. We understand that
application of our cost allocation rules
to circuits used for both voice and data
services may require some additional
effort from applicants and service
providers; however, the requirement
does not impose a substantial burden
and provides an important benefit to the
program.
156. We provide the following
clarifications regarding application of
our cost allocation rules to circuits
carrying both voice and data services.
• For a bundled voice and data
service provided over a single circuit,
(e.g., a cable voice/data bundle) the
voice service portion must be cost
allocated and subject to the voice
services phase down. As with telephone
service components, one proper method
for cost allocating the voice service
portion of a bundled voice/data circuit
may be for the applicant to seek an
appropriate cost allocation from its
service provider.
• For circuits dedicated solely to
voice service, including PRIs, SIP
trunks, and VoIP provider circuits, the
full cost of the dedicated circuit is
subject to the voice services phase
down. Verizon’s description of a circuit
leased for a district-operated private
voice network would be considered a
circuit dedicated to voice service.
• For services that dedicate a portion
of a data circuit to voice service, (e.g.,
voice channels on a T–1 circuit or
dedicated bandwidth for VoIP traffic
using a virtual local area network) the
cost of the dedicated portion of the
circuit must be cost allocated and
subject to the voice services phase
down.
• For voice applications that run over
a data circuit but do not require any
dedicated circuit capacity, the applicant
is not required to cost allocate any
portion of the data circuit cost for voice
services.
PO 00000
Frm 00089
Fmt 4700
Sfmt 4700
5983
157. Funding for Budgets. Verizon
asks the Commission to clarify that it
expects full funding to be available up
to the budgeted amount in each of the
five years of an applicant’s category two
budget and that priority be given in later
years of a budget cycle to applicants that
receive category two support in the first
funding years 2015 and 2016. Based on
historic demand and the changes we
made to the E-rate program in both Erate Modernization Orders, we expect
funding will be sufficient to meet
demand but we cannot guarantee that
category two funding will be available
to any particular applicant in any
particular year.
VII. Delegation To Revise Rules
158. Given the complexities
associated with modernizing the E-rate
program, modifying our rules, and the
other programmatic changes we adopt
in this Report and Order, we delegate
authority to the Bureau to make any
further rule revisions as necessary to
ensure the changes to the program
adopted in this Report and Order are
reflected in our rules. This includes
correcting any conflicts between new
and/or revised rules and existing rules
as well as addressing any omissions or
oversights. If any such rule changes are
warranted the Bureau shall be
responsible for such change. We note
that any entity that disagrees with a rule
change made on delegated authority
will have the opportunity to file an
Application for Review by the full
Commission. We expect the Bureau and
USAC to monitor the program for waste,
fraud and abuse and we delegate
authority to the Bureau and OMD to
specify additional administrative
requirements in connection with the
program changes we adopt today and
authority to provide guidance to USAC
in its implementation of these changes.
The purpose of this delegation is to
protect against potential waste, fraud,
and abuse in the E-rate program.
VIII. Procedural Matters
A. Final Regulatory Flexibility Analysis
159. As required by the Regulatory
Flexibility Act of 1980, as amended
(RFA), the Federal Communications
Commission (Commission) included
Initial Regulatory Flexibility Analyses
(IRFAs) of the possible significant
economic impact on a substantial
number of small entities by the policies
and rules proposed in the E-rate
Modernization NPRM and E-rate
Modernization FNPRM in WC Docket
No. 13–184. The Commission sought
written public comment on the
proposals in the E-rate Modernization
E:\FR\FM\04FER1.SGM
04FER1
5984
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
tkelley on DSK3SPTVN1PROD with RULES
NPRM and E-rate Modernization
FNPRM, including comment on the
IRFAs. This Final Regulatory Flexibility
Analysis (FRFA) conforms to the RFA.
B. Need for, and Objectives of, the
Proposed Rule
160. The Commission is required by
section 254 of the Communications Act
of 1934, as amended, to promulgate
rules to implement the universal service
provisions of section 254. On May 8,
1997, the Commission adopted rules to
reform its system of universal service
support mechanisms so that universal
service is preserved and advanced as
markets move toward competition.
Specifically, under the schools and
libraries universal service support
mechanism, also known as the E-rate
program, eligible schools, libraries, and
consortia that include eligible schools
and libraries may receive discounts for
eligible telecommunications services,
Internet access, and internal
connections.
161. In July 2013, the Commission
issued a Notice of Proposed Rulemaking
seeking public comment on proposals to
update the E-rate program to focus on
21st Century broadband needs of
schools and libraries. Later, in February
2014, the Wireline Competition Bureau
(Bureau) issued a Public Notice seeking
focused comment on issues raised in the
E-rate Modernization NPRM. Then, in
July 2014, we adopted a number of
proposals in the E-rate Modernization
NPRM and issued a Further Notice of
Proposed Rulemaking seeking public
comment on additional proposals to
update the E-rate program. In this
Report and Order, we adopt a number
of the proposals put forward in the Erate Modernization NPRM and E-rate
Modernization FNPRM.
162. This Report and Order continues
the Commission’s efforts to promote
broadband access for schools and
libraries and support the goals that we
adopted in the E-rate Modernization
Order. In it, we lower the barrier to
obtaining high-speed connections and
increase the E-rate funding cap to meet
the needs of the program. To lower
barriers to obtaining high-speed
connections, we (1) provide greater
flexibility for applicants with respect to
payment options for large non-recurring
capital costs for high-speed broadband;
(2) equalize the treatment of lit and dark
fiber to offer applicants an additional
cost-effective option for deploying highspeed broadband; (3) allow selfconstruction of high-speed broadband
facilities by schools and libraries when
self-construction is the most costeffective option; (4) provide up to an
additional 10 percent in category one
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
funding to match state funding for
special construction charges for lastmile facilities to support high-speed
broadband; and (5) obligating recipients
of high-cost Universal Service Fund
support to offer high-speed broadband
to schools and libraries located in the
geographic area where the carrier
receives high-cost support at rates
reasonably comparable to similar
services in urban areas. To meet the
needs of the program, we raise the E-rate
funding cap to $3.9 billion.
C. Summary of Significant Issues Raised
by Public Comments to the IRFA
163. No comments specifically
addressed the IRFA.
D. Description and Estimate of the
Number of Small Entities to Which the
Proposed Rules May Apply
164. The RFA directs agencies to
provide a description of and, where
feasible, an estimate of the number of
small entities that may be affected by
the proposed rules, if adopted. The RFA
generally defines the term ‘‘small
entity’’ as having the same meaning as
the terms ‘‘small business,’’ ‘‘small
organization,’’ and ‘‘small governmental
jurisdiction.’’ In addition, the term
‘‘small business’’ has the same meaning
as the term ‘‘small business concern’’
under the Small Business Act. A small
business concern is one that: (1) Is
independently owned and operated; (2)
is not dominant in its field of operation;
and (3) satisfies any additional criteria
established by the Small Business
Administration (SBA). Nationwide,
there are a total of approximately 28.2
million small businesses, according to
the SBA. A ‘‘small organization’’ is
generally ‘‘any not-for-profit enterprise
which is independently owned and
operated and is not dominant in its
field.’’
165. Nationwide, as of 2002, there
were approximately 1.6 million small
organizations. The term ‘‘small
governmental jurisdiction’’ is defined
generally as ‘‘governments of cities,
towns, townships, villages, school
districts, or special districts, with a
population of less than fifty thousand.’’
Census Bureau data for 2002 indicate
that there were 87,525 local
governmental jurisdictions in the
United States. We estimate that, of this
total, 84,377 entities were ‘‘small
governmental jurisdictions.’’ Thus, we
estimate that most governmental
jurisdictions are small.
166. Small entities potentially
affected by the proposals herein include
eligible schools and libraries and the
eligible service providers offering them
discounted services.
PO 00000
Frm 00090
Fmt 4700
Sfmt 4700
167. Schools and Libraries. As noted,
‘‘small entity’’ includes non-profit and
small government entities. Under the
schools and libraries universal service
support mechanism, which provides
support for elementary and secondary
schools and libraries, an elementary
school is generally ‘‘a non-profit
institutional day or residential school
that provides elementary education, as
determined under state law.’’ A
secondary school is generally defined as
‘‘a non-profit institutional day or
residential school that provides
secondary education, as determined
under state law,’’ and not offering
education beyond grade 12. For-profit
schools and libraries, and schools and
libraries with endowments in excess of
$50,000,000, are not eligible to receive
discounts under the program, nor are
libraries whose budgets are not
completely separate from any schools.
Certain other statutory definitions apply
as well. The SBA has defined
elementary and secondary schools and
libraries having $6 million or less in
annual receipts as small entities. In
funding year 2007, approximately
105,500 schools and 10,950 libraries
received funding under the schools and
libraries universal service mechanism.
Although we are unable to estimate with
precision the number of these entities
that would qualify as small entities
under SBA’s size standard, we estimate
that fewer than 105,500 schools and
10,950 libraries might be affected
annually by our action, under current
operation of the program.
168. Telecommunications Service
Providers. First, neither the Commission
nor the SBA has developed a size
standard for small incumbent local
exchange services. The closest size
standard under SBA rules is for Wired
Telecommunications Carriers. Under
that size standard, such a business is
small if it has 1,500 or fewer employees.
According to Commission data, 1,307
incumbent carriers reported that they
were engaged in the provision of local
exchange services. Of these 1,307
carriers, an estimated 1,006 have 1,500
or fewer employees and 301 have more
than 1,500 employees. Thus, under this
category and associated small business
size standard, we estimate that the
majority of entities are small. We have
included small incumbent local
exchange carriers in this RFA analysis.
A ‘‘small business’’ under the RFA is
one that, inter alia, meets the pertinent
small business size standard (e.g., a
telephone communications business
having 1,500 or fewer employees), and
‘‘is not dominant in its field of
operation.’’ The SBA’s Office of
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
Advocacy contends that, for RFA
purposes, small incumbent local
exchange carriers are not dominant in
their field of operation because any such
dominance is not ‘‘national’’ in scope.
We have therefore included small
incumbent carriers in this RFA analysis,
although we emphasize that this RFA
action has no effect on the
Commission’s analyses and
determinations in other, non-RFA
contexts.
169. Second, neither the Commission
nor the SBA has developed a definition
of small entities specifically applicable
to providers of interexchange services
(IXCs). The closest applicable definition
under the SBA rules is for wired
telecommunications carriers. This
provides that a wired
telecommunications carrier is a small
entity if it employs no more than 1,500
employees. According to the
Commission’s 2010 Trends Report, 359
companies reported that they were
engaged in the provision of
interexchange services. Of these 300
IXCs, an estimated 317 have 1,500 or
few employees and 42 have more than
1,500 employees. Consequently, the
Commission estimates that most
providers of interexchange services are
small businesses.
170. Third, neither the Commission
nor the SBA has developed a definition
of small entities specifically applicable
to competitive access services providers
(CAPs). The closest applicable
definition under the SBA rules is for
wired telecommunications carriers. This
provides that a wired
telecommunications carrier is a small
entity if it employs no more than 1,500
employees. According to the 2010
Trends Report, 1,442 CAPs and
competitive local exchange carriers
(competitive LECs) reported that they
were engaged in the provision of
competitive local exchange services. Of
these 1,442 CAPs and competitive LECs,
an estimated 1,256 have 1,500 or fewer
employees and 186 have more than
1,500 employees. Consequently, the
Commission estimates that most
providers of competitive exchange
services are small businesses.
171. Wireless Telecommunications
Carriers (except Satellite). Since 2007,
the Census Bureau has placed wireless
firms within this new, broad, economic
census category. Prior to that time, such
firms were within the now-superseded
categories of ‘‘Paging’’ and ‘‘Cellular and
Other Wireless Telecommunications.’’
Under the present and prior categories,
the SBA has deemed a wireless business
to be small if it has 1,500 or fewer
employees. Because Census Bureau data
are not yet available for the new
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
category, we will estimate small
business prevalence using the prior
categories and associated data. For the
category of Paging, data for 2002 show
that there were 807 firms that operated
for the entire year. Of this total, 804
firms had employment of 999 or fewer
employees, and three firms had
employment of 1,000 employees or
more. For the category of Cellular and
Other Wireless Telecommunications,
data for 2002 show that there were 1,397
firms that operated for the entire year.
Of this total, 1,378 firms had
employment of 999 or fewer employees,
and 19 firms had employment of 1,000
employees or more. Thus, we estimate
that the majority of wireless firms are
small.
172. Wireless telephony includes
cellular, personal communications
services, and specialized mobile radio
telephony carriers. As noted, the SBA
has developed a small business size
standard for Wireless
Telecommunications Carriers (except
Satellite). Under the SBA small business
size standard, a business is small if it
has 1,500 or fewer employees.
According to the 2010 Trends Report,
413 carriers reported that they were
engaged in wireless telephony. Of these,
an estimated 261 have 1,500 or fewer
employees and 152 have more than
1,500 employees. We have estimated
that 261 of these are small under the
SBA small business size standard.
173. Common Carrier Paging. As
noted, since 2007 the Census Bureau
has placed paging providers within the
broad economic census category of
Wireless Telecommunications Carriers
(except Satellite). Prior to that time,
such firms were within the nowsuperseded category of ‘‘Paging.’’ Under
the present and prior categories, the
SBA has deemed a wireless business to
be small if it has 1,500 or fewer
employees. Because Census Bureau data
are not yet available for the new
category, we will estimate small
business prevalence using the prior
category and associated data. The data
for 2002 show that there were 807 firms
that operated for the entire year. Of this
total, 804 firms had employment of 999
or fewer employees, and three firms had
employment of 1,000 employees or
more. Thus, we estimate that the
majority of paging firms are small.
174. In addition, in the Paging Second
Report and Order, 64 FR 33762, June 24,
1999, the Commission adopted a size
standard for ‘‘small businesses’’ for
purposes of determining their eligibility
for special provisions such as bidding
credits and installment payments. A
small business is an entity that, together
with its affiliates and controlling
PO 00000
Frm 00091
Fmt 4700
Sfmt 4700
5985
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 thirtytwo companies claiming small business
status purchased 3,724 licenses. A third
auction, consisting of 8,874 licenses in
each of 175 EAs and 1,328 licenses in
all but three of the 51 MEAs, was held
in 2003. Seventy-seven bidders claiming
small or very small business status won
2,093 licenses.
175. Currently, there are
approximately 74,000 Common Carrier
Paging licenses. According to the most
recent Trends in Telephone Service, 291
carriers reported that they were engaged
in the provision of ‘‘paging and
messaging’’ services. Of these, an
estimated 289 have 1,500 or fewer
employees and two have more than
1,500 employees. We estimate that the
majority of common carrier paging
providers would qualify as small
entities under the SBA definition.
176. Internet Service Providers. The
2007 Economic Census places these
firms, whose services might include
voice over Internet protocol (VoIP), in
either of two categories, depending on
whether the service is provided over the
provider’s own telecommunications
facilities (e.g., cable and DSL ISPs), or
over client-supplied
telecommunications connections (e.g.,
dial-up ISPs). The former are within the
category of Wired Telecommunications
Carriers, which has an SBA small
business size standard of 1,500 or fewer
employees. The latter are within the
category of All Other
Telecommunications, which has a size
standard of annual receipts of $25
million or less. The most current Census
Bureau data for all such firms, however,
are the 2002 data for the previous
census category called Internet Service
Providers. That category had a small
business size standard of $21 million or
less in annual receipts, which was
revised in late 2005 to $23 million. The
2002 data show that there were 2,529
such firms that operated for the entire
year. Of those, 2,437 firms had annual
receipts of under $10 million, and an
additional 47 firms had receipts of
between $10 million and $24,999,999.
Consequently, we estimate that the
majority of ISP firms are small entities.
E:\FR\FM\04FER1.SGM
04FER1
tkelley on DSK3SPTVN1PROD with RULES
5986
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
177. Vendors of Internal Connections:
Telephone Apparatus Manufacturing.
The Census Bureau defines this category
as follows: ‘‘This industry comprises
establishments primarily engaged in
manufacturing wire telephone and data
communications equipment. These
products may be standalone or boardlevel components of a larger system.
Examples of products made by these
establishments are central office
switching equipment, cordless
telephones (except cellular), PBX
equipment, telephones, telephone
answering machines, LAN modems,
multi-user modems, and other data
communications equipment, such as
bridges, routers, and gateways.’’ The
SBA has developed a small business
size standard for Telephone Apparatus
Manufacturing, which is: all such firms
having 1,000 or fewer employees.
According to Census Bureau data for
2002, there were a total of 518
establishments in this category that
operated for the entire year. Of this
total, 511 had employment of under
1,000, and an additional seven had
employment of 1,000 to 2,499. Thus,
under this size standard, the majority of
firms can be considered small.
178. Vendors of Internal Connections:
Radio and Television Broadcasting and
Wireless Communications Equipment
Manufacturing. The Census Bureau
defines this category as follows: ‘‘This
industry comprises establishments
primarily engaged in manufacturing
radio and television broadcast and
wireless communications equipment.
Examples of products made by these
establishments are: transmitting and
receiving antennas, cable television
equipment, GPS equipment, pagers,
cellular phones, mobile
communications equipment, and radio
and television studio and broadcasting
equipment.’’ The SBA has developed a
small business size standard for firms in
this category, which is: all such firms
having 750 or fewer employees.
According to Census Bureau data for
2002, there were a total of 1,041
establishments in this category that
operated for the entire year. Of this
total, 1,010 had employment of under
500, and an additional 13 had
employment of 500 to 999. Thus, under
this size standard, the majority of firms
can be considered small.
179. Vendors of Internal Connections:
Other Communications Equipment
Manufacturing. The Census Bureau
defines this category as follows: ‘‘This
industry comprises establishments
primarily engaged in manufacturing
communications equipment (except
telephone apparatus, and radio and
television broadcast, and wireless
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
communications equipment).’’ The SBA
has developed a small business size
standard for Other Communications
Equipment Manufacturing, which is
having 750 or fewer employees.
According to Census Bureau data for
2002, there were a total of 503
establishments in this category that
operated for the entire year. Of this
total, 493 had employment of under
500, and an additional 7 had
employment of 500 to 999. Thus, under
this size standard, the majority of firms
can be considered small.
E. Description of Projected Reporting,
Recordkeeping, and Other Compliance
Requirements for Small Entities
180. Some of our rule changes will
result in additional recordkeeping
requirements for small entities. For all
of those rule changes, we have
determined that the benefit the rule
change will bring for the program
outweighs the burden of the increased
recordkeeping requirement.
1. Increase in Projected Reporting,
Recordkeeping and Other Compliance
Requirements
181. Compliance burdens. All of the
rules we implement impose some
burden on small entities by requiring
them to become familiar with the new
rule to comply with it. For many new
rules, the burden of becoming familiar
with the new rule in order to comply
with it is the only burden the rule
imposes.
182. Extending pre-discount budgets
for category two services for three
additional years. This rule change will
increase recordkeeping burdens by
requiring applicants to calculate their
budgets and keep track of the amount
that they have spent in a five-year
period. The benefit of making category
two funding available to applicants
outweighs this burden.
183. Permitting self-construction
option. Our permitting applicants to
receive E-rate funding for selfconstruction networks creates the minor
additional burden of requiring
applicants to seek bids for both selfconstruction and services-only. The cost
savings applicants and the Fund will
realize from this rule change justifies
these burdens.
184. Additional discounts when states
match funds for fiber construction.
Providing additional discounts when
states match funds for fiber construction
will impose the additional minimal
burden of requiring applicants to
produce documentation verifying states’
matched funds. The additional USF
funding for fiber construction that this
PO 00000
Frm 00092
Fmt 4700
Sfmt 4700
rule change makes available to
applicants outweighs this burden.
185. High-cost providers. The
requirement that recipients of high-cost
support offer broadband service to
eligible schools and libraries at rates
reasonably comparable to rates charged
in urban areas will increase
recordkeeping burdens for some service
providers and some E-rate applicants.
Specifically, E-rate service providers
who receive high-cost support will have
the additional burden of bidding for,
and possibly providing, services to
schools and libraries in areas they
receive high-cost support. Schools and
libraries in those areas will have the
additional burden of evaluating bids
from these service providers.
2. Decrease in Projected Reporting,
Recordkeeping and Other Compliance
Requirements
186. Suspending USAC’s multi-year
amortization policy for non-recurring
construction costs. Our suspension of
USAC’s multi-year amortization policy
for non-recurring construction costs will
decrease recordkeeping requirements by
eliminating the burdens associated with
amortization for the duration of the
suspension.
3. Steps Taken To Minimize the
Significant Economic Impact on Small
Entities, and Significant Alternatives
Considered
187. The RFA requires an agency to
describe any significant, specifically
small business, alternatives that it has
considered in reaching its proposed
approach, which may include the
following four alternatives (among
others): ‘‘(1) The establishment of
differing compliance or reporting
requirements or timetables that take into
account the resources available to small
entities; (2) the clarification,
consolidation, or simplification of
compliance and reporting requirements
under the rule for such small entities;
(3) the use of performance rather than
design standards; and (4) an exemption
from coverage of the rule, or any part
thereof, for such small entities.’’
188. This rulemaking could impose
minimal additional burdens on small
entities. We considered alternatives to
the rulemaking changes that increase
projected reporting, recordkeeping and
other compliance requirements for small
entities.
189. Report to Congress.
190. The Commission will send a
copy of this Report and Order, including
this FRFA, in a report to be sent to
Congress pursuant to the SBREFA. In
addition, the Commission will send a
copy of the Report and Order, including
E:\FR\FM\04FER1.SGM
04FER1
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
the FRFA, to the Chief Counsel for
Advocacy of the SBA. A copy of the
Report and Order and the FRFA (or
summaries thereof) will also be
published in the Federal Register.
F. Paperwork Reduction Act Analysis
191. This Report and Order and Order
or Reconsideration contains new
information collection requirements
subject to the Paperwork Reduction Act
of 1995 (PRA), Public Law 104–13. It
will be submitted to the Office of
Management and Budget (OMB) for
review under section 3507(d) of the
PRA. OMB, the general public, and
other Federal agencies are invited to
comment on the revised information
collection requirements contained in
this proceeding. In addition, we note
that pursuant to the Small Business
Paperwork Relief Act of 2002, Public
Law 107–198, the Commission
previously sought specific comment on
how it might further reduce the
information collection burden on small
business concerns with fewer than 25
employees.
tkelley on DSK3SPTVN1PROD with RULES
G. Congressional Review Act
192. The Commission will include a
copy of this Report and Order and Order
on Reconsideration in a report to be sent
to Congress and the Government
Accountability Office pursuant to the
Congressional Review Act.
IX. Ordering Clauses
193. Accordingly, it is Ordered, that
pursuant to the authority contained in
sections 1 through 4, 201 through 205,
254, 303(r), 403, and 405 of the
Communications Act of 1934, as
amended, 47 U.S.C. 151–154, 201–205,
254, 303(r), 403, and 405, and section
706 of the Telecommunications Act of
1996, 47 U.S.C. 1302, this Report and
Order and Order on Reconsideration is
Adopted effective March 6, 2015, except
to the extent expressly addressed below.
194. It is further ordered, that
pursuant to the authority contained in
sections 1 through 4, 201 through 205,
254, 303(r), 403, and 405 of the
Communications Act of 1934, as
amended, 47 U.S.C. 151–154, 201–205,
254, 303(r), 403, and 405 and section
706 of the Telecommunications Act of
1996, 47 U.S.C. 1302, part 54 of the
Commission’s rules, 47 CFR part 54, is
Amended as set forth below, and such
rule amendments shall be effective
March 6, 2015, except for amendments
in §§ 54.313(e)(2) and (f)(1), 54.503(c)(1)
and 54.504(a)(1)(iii), which are subject
to the PRA and will become effective
upon announcement in the Federal
Register of OMB approval of the subject
information collection requirements and
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
of the effective date; and except for
amendments in §§ 54.308(b), 54.309(b),
54.505(b)(3) and (b)(3)(i), and 54.507(a)
and (c), which shall become effective on
July 1, 2015; and amendments in
§ 54.518 and paragraphs (b), (c) and (f)
of § 54.505, which shall become
effective on July 1, 2016.
195. It is further ordered that,
pursuant to the authority contained in
section 405 of the Communications Act
of 1934, as amended, 47 U.S.C. 405, and
§ 1.429 of the Commission’s rules, 47
CFR 1.429, the Petition for Clarification
and/or Reconsideration filed by NTCAThe Rural Broadband Association and
the Utah Rural Telecom Association on
September 18, 2014, is Granted in Part
and Denied in Part to the extent
described herein.
196. It is further ordered that,
pursuant to the authority contained in
section 405 of the Communications Act
of 1934, as amended, 47 U.S.C. 405, and
§ 1.429 of the Commission’s rules, 47
CFR 1.429, the Petition for
Reconsideration or Clarification filed by
the State E-rate Coordinators’ Alliance
on September 18, 2014, is Granted in
Part and Denied in Part to the extent
described herein.
197. It is further ordered that,
pursuant to the authority contained in
section 405 of the Communications Act
of 1934, as amended, 47 U.S.C. 405, and
§ 1.429 of the Commission’s rules, 47
CFR 1.429, the Petition for
Reconsideration filed by the Utah
Education Network on September 18,
2014, is Granted in Part and Denied in
Part to the extent described herein.
198. It is further ordered that,
pursuant to the authority contained in
section 405 of the Communications Act
of 1934, as amended, 47 U.S.C. 405, and
§ 1.429 of the Commission’s rules, 47
CFR 1.429, the Petition for
Reconsideration or Clarification filed by
the West Virginia Department of
Education on September 18, 2014, is
Granted in Part and Denied in Part to
the extent described herein.
199. It is further ordered that,
pursuant to the authority contained in
section 405 of the Communications Act
of 1934, as amended, 47 U.S.C. 405, and
§ 1.429 of the Commission’s rules, 47
CFR 1.429, the Petition for
Reconsideration filed by the United
States Telecom Association on
September 18, 2014, is Denied.
200. It is further ordered that,
pursuant to the authority contained in
section 405 of the Communications Act
of 1934, as amended, 47 U.S.C. 405, and
§ 1.429 of the Commission’s rules, 47
CFR 1.429, the Petition for
Reconsideration and/or Clarification
filed by Verizon on September 18, 2014,
PO 00000
Frm 00093
Fmt 4700
Sfmt 4700
5987
is Granted in Part and Denied in Part to
the extent described herein.
201. It is further ordered that the
Commission shall send a copy of this
Report and Order and Order on
Reconsideration to Congress and the
Government Accountability Office
pursuant to the Congressional Review
Act, see 5 U.S.C. 801(a)(1)(A).
202. It is furthered ordered that the
Commission’s Consumer and
Governmental Affairs Bureau, Reference
Information Center, shall send a copy of
the Report and Order, including the
Final Regulatory Flexibility Analysis
and Initial Regulatory Flexibility Act
Analysis, to the Chief Counsel for
Advocacy of the Small Business
Administration.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
For the reasons discussed in the
preamble, the Federal Communications
Commission amends 47 CFR part 54 as
follows:
PART 54—UNIVERSAL SERVICE
1. The authority citation for part 54
continues to read as follows:
■
Authority: Sections 1, 4(i), 5, 201, 205, 214,
219, 220, 254, 303(r), and 403 of the
Communications Act of 1934, as amended,
and section 706 of the Telecommunications
Act of 1996, as amended; 47 U.S.C. 151,
154(i), 155, 201, 205, 214, 219, 220, 254,
303(r), 403, and 1302 unless otherwise noted.
Subpart A—General Information
§ 54.5
[Amended].
2. Section 54.5 is amended by
removing the definition of ‘‘Rural area.’’
■ 3. Section 54.308 is amended by
adding paragraph (b) to read as follows:
■
§ 54.308 Broadband Public Interest
Obligations for Recipients of High-Cost
Support.
*
*
*
*
*
(b) Rate-of-return carrier recipients of
high-cost support are required upon
reasonable request to bid on category
one telecommunications and Internet
access services in response to a posted
FCC Form 470 seeking broadband
service that meets the connectivity
targets for the schools and libraries
universal service support program for
eligible schools and libraries (as
described in § 54.501) within that
carrier’s service area. Such bids must be
at rates reasonably comparable to rates
charged to eligible schools and libraries
in urban areas for comparable offerings.
■ 4. Section 54.309 is amended by
revising paragraph (b) to read as follows:
E:\FR\FM\04FER1.SGM
04FER1
5988
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
§ 54.309 Connect America Fund Phase II
Public Interest Obligations.
*
*
*
*
*
(b) Recipients of Connect America
Phase II model-based support, recipients
of Phase II Connect America support
awarded through a competitive bidding
process, and non-contiguous price cap
carriers receiving Phase II frozen
support in lieu of model-based support
are required to bid on category one
telecommunications and Internet access
services in response to a posted FCC
Form 470 seeking broadband service
that meets the connectivity targets for
the schools and libraries universal
service support program for eligible
schools and libraries (as described in
§ 54.501) located within any area in a
census block where the carrier is
receiving Phase II model-based support.
Such bids must be at rates reasonably
comparable to rates charged to eligible
schools and libraries in urban areas for
comparable offerings.
■ 5. Section 54.313 is amended by
revising paragraphs (e)(2)(iii) and (iv),
adding paragraph (e)(2)(v), revising
paragraphs (f)(1)(i) and (ii), and revising
paragraph (f)(1)(iii) to read as follows:
§ 54.313 Annual reporting requirements
for high-cost recipients.
tkelley on DSK3SPTVN1PROD with RULES
*
*
*
*
*
(e) * * *
(2) * * *
(iii) A list of the geocoded locations
to which the eligible
telecommunications carrier newly
deployed facilities capable of delivering
broadband meeting the § 54.309 public
interest obligations with Connect
America support in the prior year. The
final progress report filed on July 1,
2021 must include the total number and
geocodes of all the supported locations
that a price cap carrier has built out to
with service meeting the § 54.309 public
interest obligations;
(iv) The total amount of Phase II
support, if any, the price cap carrier
used for capital expenditures in the
previous calendar year; and
(v) A certification that it bid on
category one telecommunications and
Internet access services in response to
all FCC Form 470 postings seeking
broadband service that meets the
connectivity targets for the schools and
libraries universal service support
program for eligible schools and
libraries (as described in § 54.501)
located within any area in a census
block where the carrier is receiving
Phase II model-based support, and that
such bids were at rates reasonably
comparable to rates charged to eligible
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
schools and libraries in urban areas for
comparable offerings.
*
*
*
*
*
(f) * * *
(1) * * *
(i) A letter certifying that it is taking
reasonable steps to provide upon
reasonable request broadband service at
actual speeds of at least 4 Mbps
downstream/1 Mbps upstream, with
latency suitable for real-time
applications, including Voice over
Internet Protocol, and usage capacity
that is reasonably comparable to
comparable offerings in urban areas as
determined in an annual survey, and
that requests for such service are met
within a reasonable amount of time;
(ii) The number, names, and
addresses of community anchor
institutions to which the ETC newly
began providing access to broadband
service in the preceding calendar year;
and
(iii) For rate-of-return carrier
recipients of high-cost support, a
certification that it bid on category one
telecommunications and Internet access
services in response to all reasonable
requests in posted FCC Form 470s
seeking broadband service that meets
the connectivity targets for the schools
and libraries universal service support
program for eligible schools and
libraries (as described in § 54.501)
within its service area, and that such
bids were at rates reasonably
comparable to rates charged to eligible
schools and libraries in urban areas for
comparable offerings.
Subpart F—Universal Service Support
for Schools and Libraries
6. Section 54.502 is amended by
revising paragraph (a) introductory text,
paragraph (b) introductory text,
paragraphs (b)(1) through (3), paragraph
(b)(5), and paragraph (c) to read as
follows:
■
§ 54.502
Eligible Services.
(a) Supported services. All supported
services are listed in the Eligible
Services List as updated annually in
accordance with paragraph (d) of this
section. The services in this subpart will
be supported in addition to all
reasonable charges that are incurred by
taking such services, such as state and
federal taxes. Charges for termination
liability, penalty surcharges, and other
charges not included in the cost of
taking such service shall not be covered
by the universal service support
mechanisms. The supported services
fall within the following general
categories:
*
*
*
*
*
PO 00000
Frm 00094
Fmt 4700
Sfmt 4700
(b) Funding years 2015–2019.
Libraries, schools, or school districts
with schools that receive funding for
category two services in any of the
funding years between 2015 and 2019
shall be eligible for support for category
two services pursuant to paragraphs
(b)(1) through (6) of this section.
(1) Five-year budget. Each eligible
school or library shall be eligible for a
budgeted amount of support for category
two services over a five-year funding
cycle beginning the first funding year
support is received. Excluding support
for internal connections received prior
to funding year 2015, each school or
library shall be eligible for the total
available budget less any support
received for category two services in the
prior funding years of that school’s or
library’s five-year funding cycle. The
budgeted amounts and the funding floor
shall be adjusted for inflation annually
in accordance with § 54.507(a)(2).
(2) School budget. Each eligible
school shall be eligible for support for
category two services up to a prediscount price of $150 per student over
a five-year funding cycle. Applicants
shall calculate the student count per
school at the time the discount is
calculated each funding year. New
schools may estimate the number of
students, but must repay any support
provided in excess of the maximum
budget based on student enrollment the
following funding year.
(3) Library budget. Each eligible
library located within the Institute of
Museum and Library Services locale
codes of ‘‘11—City, Large,’’ defined as a
territory inside an urbanized area and
inside a principal city with a population
of 250,000 or more, ‘‘12—City,
Midsize,’’ defined as a territory inside
an urbanized area and inside a principal
city with a population less than 250,000
and greater than or equal to 100,000, or
‘‘21—Suburb, Large,’’ defined as a
territory outside a principal city and
inside an urbanized area with
population of 250,000 or more, shall be
eligible for support for category two
services, up to a pre-discount price of
$5.00 per square foot over a five-year
funding cycle. All other eligible libraries
shall be eligible for support for category
two services, up to a pre-discount price
of $2.30 per square foot over a five-year
funding cycle. Applicants shall provide
the total area for all floors, in square
feet, of each library outlet separately,
including all areas enclosed by the outer
walls of the library outlet and occupied
by the library, including those areas offlimits to the public.
*
*
*
*
*
E:\FR\FM\04FER1.SGM
04FER1
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
(5) Requests. Applicants shall request
support for category two services for
each school or library based on the
number of students per school building
or square footage per library building.
Category two funding for a school or
library may not be used for another
school or library. If an applicant
requests less than the maximum
budgeted category two support available
for a school or library, the applicant
may request the remaining balance in a
school’s or library’s category two budget
in subsequent funding years of the fiveyear funding cycle. The costs for
category two services shared by
multiple eligible entities shall be
divided reasonably between each of the
entities for which support is sought in
that funding year.
*
*
*
*
*
(c) Funding year 2020 and beyond.
Absent further action from the
Commission, each eligible library or
school in a school district that either did
not receive funding for category two
services in funding years 2015 through
2019 or has completed its five-year
funding cycle, shall be eligible for
support for category two services,
except basic maintenance services, no
more than twice every five funding
years. For the purpose of determining
eligibility, the five-year period begins in
any funding year in which the school or
library receives discounted category two
services other than basic maintenance
services. If a school or library receives
category two services other than basic
maintenance services that are shared
with other schools or libraries (for
example, as part of a consortium), the
shared services will be attributed to the
school or library in determining
whether it is eligible for support.
Support is not available for category two
services provided to or within noninstructional 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
§ 54.500.
*
*
*
*
*
7. Section 54.503 is amended by
revising paragraph (c)(1) to read as
follows:
tkelley on DSK3SPTVN1PROD with RULES
■
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
§ 54.503 Competitive bidding
requirements.
*
*
*
*
*
(c) Posting of FCC Form 470. (1) An
eligible school, library, or consortium
that includes an eligible school or
library seeking bids for eligible services
under this subpart shall submit a
completed FCC Form 470 to the
Administrator to initiate the competitive
bidding process. The FCC Form 470 and
any request for proposal cited in the
FCC Form 470 shall include, at a
minimum, the following information:
(i) A list of specified services for
which the school, library, or consortium
requests bids;
(ii) Sufficient information to enable
bidders to reasonably determine the
needs of the applicant;
(iii) To the extent an applicant seeks
the following services or arrangements,
an indication of the applicant’s intent to
seek:
(A) Construction of network facilities
that the applicant will own;
(B) A dark-fiber lease, indefeasible
right of use, or other dark-fiber service
agreement or the modulating electronics
necessary to light dark fiber; or
(C) A multi-year installment payment
agreement with the service provider for
the non-discounted share of special
construction costs;
(iv) To the extent an applicant seeks
construction of a network that the
applicant will own, the applicant must
also solicit bids for both the services
provided over third-party networks and
construction of applicant-owned
network facilities, in the same request
for proposals;
(v) To the extent an applicant seeks
bids for special construction associated
with dark fiber or bids to lease and light
dark fiber, the applicant must also
solicit bids to provide the needed
services over lit fiber; and
(vi) To the extent an applicant seeks
bids for equipment and maintenance
costs associated with lighting dark fiber,
the applicant must include these
elements in the same FCC Form 470 as
the dark fiber.
*
*
*
*
*
■ 8. Section 54.504 is amended by
revising paragraph (a)(1)(iii) to read as
follows:
§ 54.504
Requests for services.
(a) * * *
(1) * * *
(iii) The entities listed on the FCC
Form 471 application have secured
PO 00000
Frm 00095
Fmt 4700
Sfmt 4700
5989
access to all of the resources, including
computers, training, software,
maintenance, internal connections, and
electrical connections, necessary to
make effective use of the services
purchased. The entities listed on the
FCC Form 471 will pay the discounted
charges for eligible services from funds
to which access has been secured in the
current funding year or, for entities that
will make installment payments, they
will ensure that they are able to make
all required installment payments. The
billed entity will pay the non-discount
portion of the cost of the goods and
services to the service provider(s).
*
*
*
*
*
9. Section 54.505 is amended by
revising paragraph (b) introductory text,
paragraph (b)(3) introductory text,
paragraph (b)(3)(i), and paragraphs (c)
and (f) to read as follows:
■
§ 54.505
Discounts.
*
*
*
*
*
(b) Discount percentages. Except as
provided in paragraph (f), the discounts
available to eligible schools and
libraries shall range from 20 percent to
90 percent of the pre-discount price for
all eligible services provided by eligible
providers, as defined in this subpart.
The discounts available to a particular
school, library, or consortium of only
such entities shall be determined by
indicators of poverty and high cost.
*
*
*
*
*
(3) The Administrator shall classify
schools and libraries as ‘‘urban’’ or
‘‘rural’’ according to the following
designations.
(i) The Administrator shall designate
a school or library as ‘‘urban’’ if the
school or library is located in an
urbanized area or urban cluster area
with a population equal to or greater
than 25,000, as determined by the most
recent rural-urban classification by the
Bureau of the Census. The
Administrator shall designate all other
schools and libraries as ‘‘rural.’’
*
*
*
*
*
(c) Matrices. Except as provided in
paragraphs (d) and (f) of this section, the
Administrator shall use the following
matrices to set discount rates to be
applied to eligible category one and
category two services purchased by
eligible schools, school districts,
libraries, or consortia based on the
institution’s level of poverty and
location in an ‘‘urban’’ or ‘‘rural’’ area.
E:\FR\FM\04FER1.SGM
04FER1
5990
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
Category one schools and
libraries discount matrix
Discount level
% of students eligible for national school lunch program
Category two schools and
libraries discount matrix
Discount level
Urban
discount
< 1 ....................................................................................................................................
1–19 .................................................................................................................................
20–34 ...............................................................................................................................
35–49 ...............................................................................................................................
50–74 ...............................................................................................................................
75–100 .............................................................................................................................
tkelley on DSK3SPTVN1PROD with RULES
*
*
*
*
*
(f) Additional discounts for State
matching funds for special construction.
Federal universal service discounts
shall be based on the price of a service
prior to the application of any stateprovided support for schools or
libraries. When a governmental entity
described below provides funding for
special construction charges for
networks that meet the long-term
connectivity targets for the schools and
libraries universal service support
program, the Administrator shall match
the governmental entity’s contribution
as provided for below:
(1) All E-rate applicants. When a State
government provides funding for special
construction charges for a broadband
connection to a school or library the
Administrator shall match the State’s
contribution on a one-dollar-to-onedollar basis up to an additional 10
percent discount, provided however
that the total support from federal
universal service and the State may not
exceed 100 percent.
(2) Tribal schools. When a State
government, Tribal government, or
federal agency provides funding for
special construction charges for a
broadband connection to a school
operated by the Bureau of Indian
Education or by a Tribal government,
the Administrator shall match the
governmental entity’s contribution on a
one-dollar-to-one-dollar basis up to an
additional 10 percent discount,
provided however that the total support
from federal universal service and the
governmental entity may not exceed 100
percent.
(3) Tribal libraries. When a State
government, Tribal government, or
federal agency provides funding for
special construction charges for a
broadband connection to a library
operated by Tribal governments, the
Administrator shall match the
governmental entity’s contribution on a
one-dollar-to-one-dollar basis up to an
additional 10 percent discount,
provided however that the total support
from federal universal service and the
VerDate Sep<11>2014
20:27 Feb 03, 2015
Jkt 235001
governmental entity may not exceed 100
percent.
■ 10. Section 54.507 is amended by
revising paragraphs (a) introductory
text, (a)(1) and (3), (c), and (d) to read
as follows:
§ 54.507
Cap.
(a) Amount of the annual cap. The
aggregate annual cap on federal
universal service support for schools
and libraries shall be $3.9 billion per
funding year, of which $1 billion per
funding year will be available for
category two services, as described in
§ 54.502(a)(2), unless demand for
category one services is higher than
available funding.
(1) Inflation increase. In funding year
2016 and subsequent funding years, the
$3.9 billion funding cap on federal
universal service support for schools
and libraries shall be automatically
increased annually to take into account
increases in the rate of inflation as
calculated in paragraph (a)(2) of this
section.
*
*
*
*
*
(3) Public notice. When the
calculation of the yearly average GDP–
CPI is determined, the Wireline
Competition Bureau shall publish a
public notice in the Federal Register
within 60 days announcing any increase
of the annual funding cap including any
increase to the $1 billion funding level
available for category two services based
on the rate of inflation.
*
*
*
*
*
(c) Requests. The Administrator shall
implement an initial filing period that
treats all schools and libraries filing an
application within that period as if their
applications were simultaneously
received. The initial filing period shall
begin and conclude on dates to be
determined by the Administrator with
the approval of the Chief of the Wireline
Competition Bureau. The Administrator
shall maintain on the Administrator’s
Web site a running tally of the funds
already committed for the existing
funding year. The Administrator may
PO 00000
Frm 00096
Fmt 4700
Sfmt 4700
Rural
discount
20
40
50
60
80
90
25
50
60
70
80
90
Urban
discount
20
40
50
60
80
85
Rural
discount
25
50
60
70
80
85
implement such additional filing
periods as it deems necessary.
(d) Annual filing requirement.
(1) Schools and libraries, and consortia
of such eligible entities shall file new
funding requests for each funding year
no sooner than the July 1 prior to the
start of that funding year. Schools,
libraries, and eligible consortia must use
recurring services for which discounts
have been committed by the
Administrator within the funding year
for which the discounts were sought.
(2) Installation of category one nonrecurring services may begin on January
1 prior to the July 1 start of the funding
year, provided the following conditions
are met:
(i) Construction begins after selection
of the service provider pursuant to a
posted FCC Form 470,
(ii) A category one recurring service
must depend on the installation of the
infrastructure, and
(iii) The actual service start date for
that recurring service is on or after the
start of the funding year (July 1).
(3) Installation of category two nonrecurring services may begin on April 1
prior to the July 1 start of the funding
year.
(4) The deadline for implementation
of all non-recurring services will be
September 30 following the close of the
funding year. An applicant may request
and receive from the Administrator an
extension of the implementation
deadline for non-recurring services if it
satisfies one of the following criteria:
(i) The applicant’s funding
commitment decision letter is issued by
the Administrator on or after March 1 of
the funding year for which discounts are
authorized;
(ii) The applicant receives a service
provider change authorization or service
substitution authorization from the
Administrator on or after March 1 of the
funding year for which discounts are
authorized;
(iii) The applicant’s service provider
is unable to complete implementation
for reasons beyond the service
provider’s control; or
E:\FR\FM\04FER1.SGM
04FER1
Federal Register / Vol. 80, No. 23 / Wednesday, February 4, 2015 / Rules and Regulations
(iv) The applicant’s service provider
is unwilling to complete installation
because funding disbursements are
delayed while the Administrator
investigates the application for program
compliance.
*
*
*
*
*
§ 54.509
■
§ 54.518
■
[Removed and Reserved]
11. Remove and reserve § 54.509.
[Removed and Reserved]
12. Remove and reserve § 54.518.
Subpart I—Administration
■
13. Revise § 54.720 to read as follows:
§ 54.720
(a) An affected party requesting
review or waiver of an Administrator
decision by the Commission pursuant to
§ 54.719, shall file such a request within
sixty (60) days from the date the
Administrator issues a decision.
(b) An affected party requesting
review of an Administrator decision by
the Administrator pursuant to
§ 54.719(a), shall file such a request
within sixty (60) days from the date the
Administrator issues a decision.
(c) In all cases of requests for review
filed under § 54.719(a) through (c), the
request for review shall be deemed filed
on the postmark date. If the postmark
date cannot be determined, the
applicant must file a sworn affidavit
stating the date that the request for
review was mailed.
(d) Parties shall adhere to the time
periods for filing oppositions and
replies set forth in 47 CFR 1.45.
[FR Doc. 2015–01414 Filed 2–3–15; 8:45 am]
BILLING CODE 6712–01–P
DEPARTMENT OF COMMERCE
National Oceanic and Atmospheric
Administration
50 CFR Part 635
[Docket No. 120328229–5064–03]
RIN 0648–BC09
tkelley on DSK3SPTVN1PROD with RULES
Atlantic Highly Migratory Species;
2006 Consolidated Atlantic Highly
Migratory Species (HMS) Fishery
Management Plan; Amendment 7;
Correction
National Marine Fisheries
Service (NMFS), National Oceanic and
Atmospheric Administration (NOAA),
Commerce.
ACTION: Final rule; correcting
amendment.
AGENCY:
20:27 Feb 03, 2015
DATES:
This rule is effective February 4,
2015.
Filing deadlines.
VerDate Sep<11>2014
This action corrects a
typographical error that appeared in the
final rule implementing Amendment 7
to the 2006 Consolidated Atlantic
Highly Migratory Species Fishery
Management Plan (2006 Consolidated
HMS FMP) that published in the
Federal Register on December 2, 2014
(79 FR 71510). Specifically, this rule
corrects one of the coordinates in the
definition of the Cape Hatteras Gear
Restricted Area (GRA) to make the
geographic area in the definition match
the geographic area analyzed and
identified in all of the Amendment 7
documents.
SUMMARY:
Jkt 235001
FOR FURTHER INFORMATION CONTACT:
Thomas Warren or Brad McHale at 978–
281–9260.
SUPPLEMENTARY INFORMATION: NMFS
implemented Amendment 7 to the 2006
Consolidated HMS FMP through a final
rule that published on December 2, 2014
(79 FR 71510) and that was effective
January 1, 2015, except for
§ 635.9(b)(2)(ii) and (e)(1), which are
effective June 1, 2015; and
§ 635.15(b)(3), (4)(ii), and (5)(i), which
are effective January 1, 2016. The
December 2 final rule added regulatory
text at § 635.2 to define, among other
things, ‘‘Cape Hatteras gear restricted
area.’’ In that definition at § 635.2,
however, the sixth point of the
geographic boundaries of the restricted
area was incorrectly listed as ‘‘34°30′ N.
lat., 74°20′ W. long.’’ Instead, it should
be ‘‘35°30′ N. lat., 74°20′ W. long.″ Thus,
NMFS corrects the Cape Hatteras GRA
definition at § 635.2.
This correction does not make any
substantive change to the specific area
presented and analyzed by NMFS in the
Amendment 7 Final Environmental
Impact Statement (FEIS) issued in
August 2014 and included in permit
holder letters and other outreach
materials issued in December 2014,
which contained the details and/or
images of the correct area (i.e., the
coordinates used in those materials
were correct). It only corrects an error in
one of the coordinates published in the
regulatory text of the definitions section
of the final rule (79 FR 71510, December
2, 2014).
This correction is necessary so that
pelagic longline fishermen are allowed
to fish as intended by NMFS in
preparing the FEIS and the final rule, in
the area outside the eastern and
southern boundaries of the Cape
Hatteras GRA, as corrected, without
being subject to the regulations that
would apply within the GRA.
PO 00000
Frm 00097
Fmt 4700
Sfmt 4700
5991
Classification
The Assistant Administrator (AA) for
Fisheries, NOAA, finds that pursuant to
5 U.S.C. 553(b)(B), there is good cause
to waive prior notice and an
opportunity for public comment on this
action, as notice and comment would be
impracticable and contrary to the public
interest. This document corrects the
definition of the Cape Hatteras GRA by
specifically correcting one of the
coordinates that was incorrect in the
December 2, 2014 final rule. The
regulations regarding fishing in the Cape
Hatteras GRA were effective January 1,
2015. This correction must be
implemented in a timely manner so that
pelagic longline fishermen are allowed
to fish as intended by NMFS in
preparing the FEIS and final rule, in the
area outside the eastern and southern
boundaries of the Cape Hatteras GRA, as
corrected, without being subject to the
regulations that would apply within the
GRA. Implementation as defined in the
current version of the regulations could
result in unnecessarily restricting
fishing in areas not intended to be gear
restricted.
The correct coordinates in the final
rule have previously been subject to
notice and comment procedures through
their inclusion in all of the relevant
rulemaking documents and related
analytical documents. The correction in
this action does not make any
substantive change to the requirements
in the final rule. It only corrects the
error in the implementing regulatory
text. In addition, NMFS believes it is
important for the public to have the
correct information as soon as possible
and finds no reason to delay its
dissemination. Further delay would be
contrary to the public interest, since the
intended restrictions are not properly
defined and, as a result, fishing could be
unnecessarily restricted. This could
have unintended economic
consequences and unintended effects on
fishing behavior.
For the reasons stated above, NMFS
finds both notice and comment and the
30-day delay in effectiveness to be
unnecessary pursuant to 5 U.S.C.
553(b)(B) and 5 U.S.C. 553(d),
respectively. Therefore, NMFS finds
good cause to waive notice and
comment procedures and the 30-day
delay in effective date for this correcting
amendment.
List of Subjects in 50 CFR Part 635
Fisheries, Fishing, Fishing vessels,
Foreign relations, Imports, Penalties,
E:\FR\FM\04FER1.SGM
04FER1
Agencies
[Federal Register Volume 80, Number 23 (Wednesday, February 4, 2015)]
[Rules and Regulations]
[Pages 5961-5991]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01414]
=======================================================================
-----------------------------------------------------------------------
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket Nos. 10-90 and 13-184; FCC 14-189]
Modernization of the Schools and Libraries ``E-rate'' Program and
Connect America Fund
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: In this document, the Federal Communications Commission
(Commission) takes the next critical steps to modernize the Universal
Service Fund's Schools and Libraries program, known as E-rate. Building
on the E-rate Modernization Order, the Commission adopted in July, the
improvements to the program that the Commission adopts in this Order
seek to close the high-speed connectivity gap between rural schools and
libraries and their urban and suburban counterparts, and provide
sufficient and certain funding for high-speed connectivity to and
within all eligible schools and libraries. The Commission takes these
actions to ensure the continued success of the E-rate program as it
transitions from supporting legacy services to focusing on meeting the
high-speed broadband connectivity needs of schools and libraries
consistent with the recently adopted program goals and long-term
connectivity targets. In the Order on Reconsideration, the Commission
grants in part the petitions for reconsideration of the areas
designated as urban for purposes of the E-rate program. The Commission
also denies petitions for reconsideration of the document retention
period, the phase out of support for telephone components and other
services, and funding commitments that cover multiple years. At the
same time, the Commission clarifies our cost effectiveness test for
individual data plans and the cost allocation rules for circuits
carrying voice services.
DATES: Effective March 6, 2015, except for amendments to Sec. Sec.
54.313(e)(2) and (f)(1), 54.503(c)(1), and 54.504(a)(1)(iii), which are
subject to the PRA and OMB approval of the information collection
requirements. FCC will publish a document in the Federal Register
announcing the effective date. The amendments to Sec. Sec. 54.308(b),
54.309(b), 54.505(b)(3) introductory text and (b)(3)(i), and 54.507(a)
introductory text, (a)(1), and (c) are effective on July 1, 2015; and
amendments to Sec. Sec. 54.505(b) introductory text, (c), and (f) and
54.518 are effective on July 1, 2016.
FOR FURTHER INFORMATION CONTACT: Kate Dumouchel, Wireline Competition
Bureau, Telecommunications Access Policy Division, at (202) 418-7400 or
TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second
Report and Order and Order on Reconsideration, in WC Docket Nos. 10-90
and 13-184; FCC 14-189, adopted on December 11, 2014 and released on
December 19, 2014. The full text of this document is available for
public inspection during regular business hours in the FCC Reference
Center, Room CY-A257, 445 12th Street SW., Washington, DC 20554. Or at
the following Internet address: https://apps.fcc.gov/edocs_public/attachmatch/FCC-14-189A1.pdf.
I. Introduction
1. In the Second E-rate Modernization Report and Order (Order) and
Order on Reconsideration, we take the next critical steps to modernize
the Universal Service Fund's Schools and Libraries program, known as E-
rate. Building on the E-rate Modernization Order we adopted in July,
the improvements to the program that we adopt in this Order seek to
close the high-speed connectivity gap between rural schools and
libraries and their urban and suburban counterparts, and provide
sufficient and certain funding for high-speed connectivity to and
within all eligible schools and libraries. We take these actions to
ensure the continued success of the E-rate program as it transitions
from supporting legacy services to focusing on meeting the high-speed
broadband connectivity needs of schools and libraries consistent with
the recently adopted program goals and long-term connectivity targets.
2. Through the changes we make to the E-rate program, we take
further steps forward in our effort to modernize the program and place
it on firm footing to meet the program goals. As the changes made in
this Order and the E-rate Modernization Order are implemented, we will
continue to identify additional steps that can to be taken to further
modernize the E-rate program and achieve our goals of: (1) ensuring
affordable access to high-speed broadband; (2) maximizing the cost-
effectiveness of spending for E-rate supported purchases; and (3)
making the E-rate application process and other E-rate processes fast,
simple, and efficient. We recognize that these changes will require
adjustments by applicants, service providers, and other stakeholders,
and in conjunction with USAC we commit to ensure that sufficient
training and educational resources are provided to assist these groups
during this transition. Finally, as always, we welcome feedback from
applicants, service providers, teachers, librarians, state and local
governments, and all other stakeholders on additional measures to reach
our goals faster and improve the E-rate program.
II. Maximizing Schools' and Libraries' Options for Purchasing
Affordable High-Speed Broadband Connectivity
3. We focus in this section on providing schools and libraries,
particularly those in rural areas, more options for purchasing
affordable high-speed broadband connections. We agree with the many
commenters who make clear that in order to meet the Commission's
connectivity targets, in addition to increased funding, we must make
changes to the program to meet the need for affordable high-speed
connectivity to schools and libraries. The CoSN Survey identifies the
monthly cost of recurring Internet access services and an inability to
pay for the capital or non-recurring costs to get high-speed
connections as the two biggest barriers to increasing connectivity to
schools. Likewise, the American Library Association (ALA), the Public
Library Association, and others indicate that lack of access to
broadband infrastructure and the high costs of recurring services
hamper libraries' ability to meet our E-rate goals. As ALA has
explained, our nation's libraries depend on affordable, scalable, high-
capacity broadband in order to complete education, jumpstart employment
and entrepreneurship, and foster individual empowerment and engagement.
To meet the connectivity targets we adopted in the E-rate Modernization
Order, substantial numbers of schools and libraries will need to find
vendors willing and able to provide affordable high-speed connections
to their buildings and be able to afford the recurring costs of those
high-speed connections.
4. Over the course of the last 18 years, the Commission has
recognized the importance of giving local school districts and
libraries the flexibility to purchase E-rate supported services that
meet their needs. With rare exceptions, however, the program has not
adopted new tools for applicants to use in
[[Page 5962]]
purchasing connectivity. The actions we take today give applicants more
options for purchasing connectivity and represent a crucial step in
meeting our first goal for the E-rate program: ensuring affordable
access to high-speed broadband sufficient to support digital learning
in schools and robust connectivity for all libraries.
5. The E-rate program historically has fully funded all priority
one (now category one) funding requests, which include funding requests
for high-speed broadband connections to schools and libraries. Despite
the program's history of funding all priority one requests, the record
demonstrates that a substantial percentage of U.S. schools do not meet
the short term Internet Access connectivity target of 100 Mbps per
1,000 users that we adopted in the E-rate Modernization Order.
Similarly, the record demonstrates that most libraries do not meet our
short-term connectivity targets. In addition, by not effectively
enabling E-rate applicants to undertake large construction projects,
purchase dark fiber and consider self-construction of high-speed
networks, our current rules and procedures prevent some applicants from
choosing the most cost-effective options for increasing the high-speed
broadband connections to their school and library buildings.
6. We therefore take actions targeted at closing the rural
connectivity gap and increasing affordable high-speed broadband
connections to schools and libraries. First, we direct USAC to suspend
its policy requiring applicants to amortize over multiple years upfront
charges for category one special construction exceeding $500,000 while
allowing applicants to pay the non-discounted portion of category one
special construction charges over four years. Next, in limited
circumstances and with appropriate safeguards, we adopt changes to the
E-rate program's rules to equalize the treatment of lit and dark fiber,
to allow applicants to self-construct and operate connections to their
school and library buildings, and to incentivize federal-state
cooperation in deploying broadband infrastructure to schools and
libraries in hard to connect areas. Finally, we establish an obligation
for recipients of high-cost support to offer broadband service to
requesting eligible schools and libraries at rates reasonably
comparable to rates charged in urban areas.
7. We direct USAC, working with the Wireline Competition Bureau
(Bureau) and the Office of the Managing Director (OMD), to implement
the changes we make to the program in this Order. In so doing, we
reaffirm our delegation of authority to the Bureau to issue orders
interpreting our E-rate rules and otherwise provide clarification and
guidance in the case of any ambiguity that may arise as necessary to
ensure that support for services provided to schools and libraries
operate to further the goals we have adopted for the E-rate program. We
also direct the Bureau, working with OMD and other Commission staff, to
make changes to the E-rate information collections, as needed, and to
provide direction to USAC to implement the changes.
8. These actions will result in increased high-speed broadband
connections to schools and libraries in all areas in furtherance of the
E-rate program's Internet access and WAN/last-mile goals and are
consistent with section 254 of the Act, which, inter alia, directs the
Commission to ``enhance, to the extent technically feasible and
economically reasonable, access to advanced telecommunications and
information services'' for schools and libraries. Moreover, these
changes will allow applicants more flexibility to pursue the most cost-
effective option for connecting schools and library buildings. Although
these incentives will likely have the greatest effect on broadband
availability and affordability in rural and high-cost areas, they will
also give E-rate applicants in urban areas more purchasing options.
9. We are cognizant of the fact that some commenters have expressed
concerns that the cumulative effect of the actions we take in this
order to facilitate greater use of E-rate dollars for special
construction charges could result in insufficient funds being available
for other category one expenses and category two costs. In order to
address these concerns, we require USAC to report to the Bureau if E-
rate commitments for special construction charges resulting from the
rules we adopt today exceed ten percent of the total E-rate cap for any
given funding year. In determining whether a report is required, USAC
shall consider the commitments for special construction charges for
dark fiber, self-construction, and for special construction that takes
advantage of state matching funds for a given funding year. Any such
report shall also provide information to the Bureau concerning the
cost-effectiveness of the special construction projects to which USAC
has committed funding. That report shall be informed by the work done
on cost-effective analysis as provided for in this Order. The Bureau
shall present the findings to the full Commission for its consideration
of the impact of special construction charges on the long-term
financial viability of the program and the ability of the Commission to
meet the E-rate program goals adopted in the July E-rate Modernization
Order.
A. Making the Payment Options for Special Construction Charges More
Flexible (WC Docket 13-184)
10. To help applicants overcome the cost barrier to high-speed
broadband deployment projects, we make a set of administrative and rule
changes that will help schools and libraries more easily undertake
projects requiring special construction charges. First, we direct USAC
to temporarily suspend its policy of requiring applicants to amortize
large non-recurring category one charges to encourage vendors to bid on
E-rate projects requiring special construction. Second, we allow
applicants to pay the non-discounted share of category one special
construction charges over four years rather than requiring schools or
libraries working with limited budgets to pay the entirety of their
share in a single year. We anticipate these changes will provide the
right incentives to schools and libraries to consider necessary
broadband infrastructure deployments and will attract a diverse slate
of vendors to such projects from which the applicants can choose.
1. Suspending USAC's Multi-Year Amortization Policy for Non-Recurring
Construction Costs
11. To encourage efficient investment in high-speed broadband
infrastructure, including the deployment of fiber, we direct USAC to
suspend for four years its policy of requiring applicants to amortize
large category one non-recurring charges. Encouraging construction of
high-speed connections to schools and libraries is a crucial part of
our effort to ensure that all schools and libraries achieve our
connectivity targets. Suspending the amortization requirement will give
applicants the flexibility to plan large construction projects knowing
they can recover the E-rate supported portion of any non-recurring
costs upfront, thus providing greater certainty regarding funding and
removing this potential barrier to infrastructure investment.
12. We are comfortable taking this step not only because it will
encourage deployment but also because the concerns described by the
Commission in 2000 that caused USAC to institute this restriction have
proven to be not well-founded. In the Brooklyn Order, the Commission
expressed concern that large upfront payments for non-recurring
services could create a critical drain on the Fund, thereby limiting
the number of schools and libraries that
[[Page 5963]]
would receive funding. To prevent such an occurrence, the Commission
held that applicants must amortize upfront non-recurring charges when
such charges vastly exceed the monthly recurring charges of the
relevant service. In response to this general direction, USAC
implemented a policy requiring applicants to amortize upfront or non-
recurring charges of $500,000 or more over a period of at least three
years.
13. Large upfront payments have not proven to be a drain on the
Fund, and would not have been even if they had not been amortized.
Moreover, we agree with commenters that argue that suspension of this
amortization policy is likely to incentivize efficient investments in
infrastructure, including the deployment of fiber. As commenters point
out, USAC's current amortization policy requires many service providers
to obtain financing for special construction projects, who then pass
along the costs of this financing to applicants in the form of larger
monthly recurring costs. Consequently, USAC's current amortization
policy may actually increase the total costs borne both by applicants
and the program. In addition, ALA and other commenters indicate that
lack of certainty about the ability to recover costs in future funding
years may deter some applicants from investing in large infrastructure
projects that will be amortized over future funding years.
14. Some commenters express the same concern articulated by the
Commission in the Brooklyn Order, that if large numbers of applicants
seek support for substantial upfront construction charges, the
Commission could receive a drastic increase in category one requests.
For that reason, we choose to test the impact of abolishing the
amortization requirement by temporarily suspending the requirement for
the next four funding years. We are confident that temporarily
suspending the amortization requirement will not create risk of
insufficient category one support available for other schools and
libraries, particularly in light of the increase in the E-rate funding
cap that we adopt today. In the E-rate Modernization Order, we began
the process of focusing E-rate support on high-speed broadband for our
nation's schools and libraries. In this Order, as discussed in more
detail below, we are raising the annual E-rate cap, in part to ensure
there are sufficient category one funds available to meet the build-out
costs of connecting currently underserved schools and libraries.
Moreover, while some providers will offer an upfront payment option, we
recognize that in other instances providers will continue to
incorporate the cost of building out to schools and libraries into
their recurring charges. In addition, because applicants are
responsible for paying the non-discounted portion of the services they
purchase, we expect that this requirement will deter some applicants
from undertaking expensive construction projects. Applicants also
remain subject to the requirement to select the most cost-effective
service offering, which will further dampen the likelihood of a drastic
increase in category one requests.
15. We therefore direct USAC to suspend application of its multi-
year amortization policy for funding years 2015 through 2018 and to
allow applicants to seek support for upfront or non-recurring charges
without imposing any amortization requirements. In evaluating this USAC
requirement, we considered a permanent end to the requirement instead
of merely suspending its application. However, we are cognizant of the
interest reflected in the Brooklyn Order of balancing the immediate
needs of some E-rate applicants against the needs of all of the
applicants. We therefore adopt the additional safeguard of suspending
rather than eliminating USAC's amortization policy for the limited
duration of the next four funding years. We expect that USAC will keep
the Bureau apprised of how many and to what extent applicants utilize
this suspension for the deployment of infrastructure. We also direct
the Bureau to revise our data collection to collect such information
beginning in funding year 2016. We believe this balanced approach will
provide us with sufficient data to determine the best course forward
for subsequent funding years.
2. Allowing Applicants To Pay the Non-Discounted Portion of Non-
Recurring Construction Costs Over Multiple Years
16. To address the challenge some applicants face in having
sufficient funds to pay the non-discounted portion of special
construction charges, we allow applicants to enter into an installment
payment plan with their service providers for the non-discounted
portion of category one special construction charges beginning in
funding year 2016. Currently, applicants must pay the entire non-
discounted portion of a special construction project to the service
provider within 90 days of delivery of service. However, the record
demonstrates that obtaining funding to pay the entire non-discounted
share of special construction charges is a major barrier to high speed
connectivity for some schools and libraries. To help schools and
libraries overcome this barrier, we will allow them to pay the non-
discounted portion of special construction charges in installment
payments of up to four years from the first day of the relevant funding
year. Pursuant to our direction above to USAC to suspend its
amortization policy, applicants will be able to seek the discounted
portion of those same category one special construction charges during
a single funding year.
17. Applicants who are interested in this flexible payment
arrangement must specifically include this request in their bids on
their FCC Forms 470. By notifying all potential bidders of their
interest, applicants will ensure that vendors know and understand all
expected terms and conditions of the school or library's bid and that
all potential service providers who are willing to offer an installment
payment option will be on notice of the applicant's interest and will
bid accordingly.
18. Service providers are under no obligation to allow this payment
arrangement and should not do so in the absence of such a request on an
applicant's FCC Form 470. However, those that do offer installment
payments in response to an FCC Form 470 seeking bids that include this
option must specify in their bid submission whether they are willing to
allow this payment arrangement and must also disclose all material
terms of that arrangement, including any interest rate they would
charge the applicant and the term of the installment payment plan they
are offering.
19. We recognize that allowing applicants greater flexibility to
pay the non-discounted cost of special construction charges combined
with the other changes we make in this Order could increase demand for
category one support. However, a temporary increase in the demand to
the Fund for special construction charges will ultimately be beneficial
to E-rate applicants and the stability of the Fund. It will result in
more students and library patrons enjoying access to scalable, high-
speed broadband connections and we expect increasing flexibility for
applicant's non-recurring payments for special construction will allow
applicants to structure the agreements with service providers so as to
lower future costs for recurring services. Moreover, the increase in
the E-rate funding cap we adopt today should alleviate concerns
resulting from any temporary increase in demand for special
construction charges.
[[Page 5964]]
20. As with our suspension of the amortization requirement, we
expect that USAC will keep the Bureau apprised of how many and to what
extent applicants utilize this installment payment option for the
deployment of infrastructure. We also direct the Bureau to consider how
best to modify our data collections to capture information about the
extent to which applicants take advantage of this option and to require
reporting and certifications by applicants and service providers
regarding the payment of the applicant's non-discounted share of
special construction charges.
21. We also amend Sec. 54.504(a)(1)(iii) to require applicants
that take advantage of this flexible payment option to certify on their
FCC Forms 471 that they are able to pay all required installment
payments. Our rule currently requires applicants to certify that they
are able to pay the discounted charges for eligible services from funds
to which access has been secured in the current funding year. This
change is necessary because applicants on an installment plan may not
have secured all of their non-discounted payments in the applicable
funding year.
22. We also take this opportunity to remind applicants and vendors
that it is a violation of our competitive bidding rules for service
providers to offer to pay the non-discounted portion of E-rate
supported services, and a violation of our gift rules and the
prohibition on the receipt of rebates for services or products
purchased with E-rate discounts to forgive payment of such charges or
to accept such payment forgiveness. By extension, service providers
that accept installment payments of the non-discounted share of E-rate
supported services cannot forgive any or all such payments. Because
interest and finance charges are not eligible for E-rate support,
applicants may not seek support for these charges. Additionally, we
remind applicants and service providers that our document retention
rules require them to maintain records of payments made so that USAC
can verify that an applicant has paid its full non-discounted share.
Applicants should also be prepared to provide documentation verifying
their agreements with service providers for an installment payment
plan.
B. Modifying the Commission's Eligible Services List and Rules To
Expand Access To Low Cost Fiber (WC Docket 13-184)
23. To further expand the competitive options for schools and
libraries seeking high-speed broadband connectivity and to drive down
broadband costs for applicants and the Fund, we amend our eligible
services list, effective in funding year 2016, to equalize the E-rate
program's treatment of lit and dark fiber; amend our rules to allow
applicants to construct their own fiber networks under limited
circumstances; and incent states to identify and provide financial
assistance for last-mile connections to underserved schools and
libraries.
1. Equalizing the Treatment of Lit and Dark Fiber
24. First, we adopt the Commission's proposal in the E-rate
Modernization NPRM, 78 FR 51597, August 20, 2013, to equalize the E-
rate program's treatment of lit and dark fiber. Citing the cost savings
and bandwidth upgrades that dark fiber can provide, school, library,
and local government commenters from urban and rural areas across the
country overwhelmingly support equalizing the treatment of lit and dark
fiber. The availability of a full dark fiber option will help some E-
rate applicants attract multiple competitive bids for construction and
deployment and will drive down broadband costs for schools and
libraries, as well as the E-rate program. We will equalize the
treatment of dark and lit fiber beginning in funding year 2016.
25. Dark-fiber leases and other dark-fiber service agreements are
commercial arrangements in which a broadband customer purchases use of
a portion of a provider-owned and maintained fiber network separately
from the service of lighting (i.e. transmitting information over) that
fiber. Many competitive providers now offer such arrangements. In the
Schools and Libraries Sixth Report and Order, 75 FR 75393, December 3,
2010, the Commission concluded that expanding access to such
arrangements would ``increase competition among providers of fiber and
ensure[ ] that schools and libraries . . . pay less for the same or
greater bandwidth,'' and therefore added dark fiber to the E-rate
eligible services list. The Commission limited dark-fiber support in
several ways, however, ``pending further inquiry into the potential
impact on the E-rate fund'' of fully equalizing the treatment of lit
and dark fiber services. The E-rate program currently supports the
recurring costs of leasing lit and dark fiber as category one services.
When a school or library leases lit fiber, the modulating electronics
necessary to light that fiber are funded as a category one service. By
contrast, a school or library that leases dark fiber currently cannot
receive category one support for the modulating electronics necessary
to light the fiber. In addition, the E-rate program currently provides
category one support for all ``special construction charges'' for
leased lit fiber, but does not support special construction charges for
leased dark fiber beyond a school or library's property line. Having
now developed a further record on this issue, we conclude that leveling
the playing field between lit and dark fiber will expand options for
applicants and will likely reduce costs for the Fund.
26. We received widespread support from a broad cross-section of E-
rate stakeholders--from schools and state E-rate experts to
municipalities and carriers--who believe the equalization of the
treatment of lit and dark fiber in the E-rate program carries
substantial benefits. Commenters contend, for example, that funding
dark fiber on an equal footing with lit fiber will provide more choices
and lower costs to schools and libraries seeking enhanced connections.
The city of Boston points out that ``distinguishing between lit and
dark fiber serves no useful purpose'' in the E-rate program and that
dark fiber should be placed on an equal footing with lit fiber if it is
the proper solution to the needs of the school or library. State-level
E-rate coordinators take a similar view, as do competitive providers.
27. While most schools and libraries seeking high-speed broadband
purchase lit fiber services, the record makes clear that dark fiber can
be a powerful option for a significant minority to drive down broadband
costs while increasing capacity. For example, Maine, which purchases
school and library connectivity through a statewide consortium, has
leased 1 Gbps dark fiber circuits to 75 schools across the state. Maine
reports that because its dark-fiber service provider charges on a per-
mile basis rather than based on bandwidth used, the state consortium's
all-inclusive cost for 1 Gbps connectivity to these 75 schools is
approximately $500 to $750 per-school per-month--roughly the same per-
circuit price the state consortium pays for one percent of that
bandwidth (10 Mbps) for lit circuits from other providers. Similarly,
the University System of Georgia's statewide research and education
network, PeachNet, is employing a dark fiber solution to significantly
increase the high-speed broadband connectivity to local school
districts. Beginning July 2015, PeachNet will increase the broadband
connectivity to each local school district from 3 Mbps per school to
100 Mbps per schools while reducing the Georgia Department of
Education's per Mbps costs by 96 percent.
[[Page 5965]]
28. Dark-fiber services can also be a cost-effective option for
smaller, rural districts that otherwise face challenges affording high-
speed circuits. For example, the Newton Public School District, an 11-
school district centered in Newton, Kansas, recently upgraded to a
district-wide 1 Gbps WAN while decreasing costs by moving to a dark-
fiber solution. Likewise, the Morgan County and Bleckley County school
systems in Georgia, which each serve rural populations, connect their
schools through cable-provided dark fiber at speeds of 1 to 10 Gbps.
Weslaco ISD, located in the south Texas Rio Grande Valley, serves a
largely poor and minority population, including many migrant families
and relies on dark-fiber leases to connect several of its 17 school
sites to its central network operations center.
29. Equalizing the treatment of lit and dark fiber is also
consistent with the Commission's approach in the Healthcare Connect
Order, 78 FR 38606, June 27, 2013. There, guided by the principle that
``providing flexibility for HCPs [health care providers] to select a
range of services . . . will maximize the impact of Fund dollars (and
scarce HCP resources),'' the Commission concluded that ``supporting
dark fiber provides an additional competitive option to help HCPs
obtain broadband in the most cost-effective manner available in the
marketplace.'' In particular, and in contrast to the current E-rate
rules, the Healthcare Connect Order authorized support for special
construction charges for both lit and dark fiber, as well as for the
installation of equipment and services ``necessary to make [dark fiber]
service functional,'' including modulating electronics.
30. Following this recent precedent and given the broad support in
the record, we will equalize the treatment of dark- and lit-fiber
services within E-rate, beginning in funding year 2016. Specifically,
adopting the Commission's proposal in the E-rate Modernization NPRM, we
will provide category one support for special construction charges for
leased dark fiber, as we do for leased lit fiber, and we will provide
category one support for the modulating electronics necessary to light
leased dark fiber.
31. To prevent applicants from using E-rate discounts to acquire
unneeded capacity or warehouse dark fiber for future use, we maintain
the safeguards that the Commission adopted in the Schools and Libraries
Sixth Report and Order, and extend those it adopted in the Healthcare
Connect Order to E-rate. First, to prevent warehousing of excess fiber
capacity, applicants cannot receive E-rate funding for recurring costs
associated with dark fiber until it is lit, and applicants may only
receive funding for special construction charges for dark fiber if it
is lit within the same funding year.
32. To provide applicants sufficient time to complete special
construction projects before a funding year begins, we codify the bulk
of USAC's current policy regarding special construction charges.
Specifically, we allow category one infrastructure costs incurred six
months prior to that funding year, provided the following conditions
are met: (1) The construction takes place only after selection of the
service provider pursuant to a posted FCC Form 470 (or any successor
form); (2) a category one recurring service must depend on the
installation of the infrastructure; and (3) the actual service start
date of that recurring service is on or after the start of the funding
year (July 1). We also direct USAC to accept invoices for special
construction charges meeting these conditions dated during this period
of time before the start of the funding year. However, applicants that
choose to start construction before they receive a funding commitment
bear the risk that their funding request will not be granted. Because
special construction charges for leased dark fiber are now eligible for
category one support, applicants seeking support for special
construction for dark fiber may avail themselves of this limited
exception for early construction. In addition, as in the Healthcare
Connect Order, we will also allow applicants to receive up to a one-
year extension to light fiber if they demonstrate that construction was
unavoidably delayed due to weather or other reasons.
33. Second, to ensure that applicants treat the price of eligible
products and services as the primary factor in selecting winning bids,
we adopt measures to ensure that applicants fairly compare dark fiber
with other options. If a school or library intends to seek support for
special construction charges associated with dark fiber, it must also
solicit proposals to provide the needed services over lit fiber.
Similarly, if a school or library intends to seek support to lease and
light dark fiber, the schools or library must also solicit proposals to
provide the needed services over lit fiber over a time period
comparable to the duration of the dark-fiber lease or IRU. In addition,
if an applicant intends to request support for equipment and
maintenance costs associated with lighting dark fiber, it must include
these elements in the same application as the dark fiber so that USAC
can easily review all costs together. These safeguards amply address
concerns that schools and libraries could choose dark-fiber solutions
when not the most cost-effective solution, that they will exclude
certain costs when comparing dark- and lit-fiber solutions, or that
they will warehouse spare capacity. Indeed, the safeguards reflect the
suggestions of many of the commenters who raised these concerns in the
record.
34. USTelecom argues that the protections adopted in the Healthcare
Connect Order will prove insufficient in the E-rate context because
``USAC-conducted cost-effectiveness reviews [are] not viable for the E-
rate program'' and ``the E-rate program--at least as it is currently
structured--provides fewer incentives for applicants to make cost-
effective choices than the Healthcare Connect Fund'' because the top
discount rate is higher. We find both arguments unpersuasive. While it
is true that the top discount rate in the E-rate program is higher than
the discount rate for recipients of Healthcare Connect funds, E-rate
discounts vary, resulting in a substantial number of E-rate applicants
receiving discount rates below those discount rates received by rural
health care providers. In addition, all E-rate applicants are required
to engage in cost-effective purchasing. Further, USAC routinely
conducts cost-effectiveness reviews of E-rate applications every year
and we are confident it can do so for applicants choice of dark-fiber
solutions, just as it does for all the other purchasing decisions
applicants make.
35. Incumbent providers also assert that equalizing the treatment
of lit and dark fiber ``undermines national broadband policy'' because
it ``takes traffic away from actual or potential last mile facilities
of broadband service providers, which frustrates their ability to
utilize schools as anchor tenants for broadband investment in
surrounding communities, especially in low density areas.'' It is our
view that vibrant competition on an even playing field generally brings
the lowest prices and best promotes ``national broadband policy.''
Accordingly, within a framework that treats lit- and dark-services
equally, incumbents are free to offer dark-fiber service themselves, or
to price their lit-fiber service at competitive rates to keep or win
business--but if they choose not to do so, it is market forces and
their own decisions, not the E-rate rules, that ``frustrate[] their
ability to utilize schools as anchor tenants.'' Nor does it ``take[]
traffic away from actual or potential last mile facilities of broadband
service providers,'' if a competitor wins school and library
[[Page 5966]]
business, for competitive providers of dark-fiber service are also
``broadband service providers,'' and our role in the E-rate context is
to encourage participation in the E-rate program and foster access to
broadband by schools and libraries, and not favor one provider over
another.
36. Finally, USTelecom reiterates its statutory argument from past
proceedings that the Act prohibits support for dark fiber because it is
not a ``service'' under section 254. The Commission has rejected this
interpretation on multiple prior occasions, and commenters neither
offer new arguments nor identify new facts that would warrant
revisiting this conclusion. USTelecom contends that even if dark fiber
itself qualifies for support, modulating electronics necessary to light
dark fiber and special construction charges for leased dark fiber do
not, because whereas ``dark fiber is part of the transmission path that
enables the requisite functionality (delivery of voice, video and/or
data) to be delivered to the classroom,'' modulating electronics and
special construction charges are ``unrelated to the transmission of
information to individual classrooms.'' USTelecom provides no
explanation for this assertion, however, nor can we imagine any.
Lighting dark fiber ``enables the requisite functionality (delivery of
voice, video and/or data)'' to just the same extent as the dark fiber
itself. Indeed, modulating electronics are a critical component of the
E-rate supported bundle when broadband is sold as a lit-fiber service.
Likewise, just as special construction charges for lit fiber are
eligible because they are part of the cost of bringing broadband
connections to school and library buildings, so too are special
construction charges for dark fiber. Further, we continue to believe
that dark fiber does enhance access to advanced telecommunications and
information services consistent with section 254(h)(2)(A). Therefore,
consistent with our policy conclusion that lit- and dark-fiber services
should be treated equally, we see nothing in the statute that would
require us to draw a distinction.
2. Permitting Self-Construction of High-Speed Broadband Networks
37. We also promote high-speed broadband connectivity by permitting
applicants to construct their own or portions of their own networks
when self-construction is the most cost-effective solution. We agree
with commenters that argue that allowing E-rate applicants to own all
or portions of their own networks can help deliver the most cost-
effective broadband services and provide financial stability for
certain E-rate recipients. We also agree with commenters that argue for
safeguards to make sure that self-construction is only available in
limited circumstances when it is demonstrated to be the most cost-
effective solution. As with our equalization of lit and dark fiber, we
allow the self-construction option beginning in funding year 2016.
38. Providing support for the self-construction of high-speed
broadband networks is also consistent with the Communications Act, as
the Commission recently found in the Healthcare Connect Order:
[S]ection 254(h)(2) provides ample authority for the Commission
to provide universal service support for HCP access to advanced
telecommunications and information services, including by providing
support to HCP-owned network facilities. Nothing in the statute
requires that such support be provided only for carrier-provided
services. Indeed, prohibiting support for HCP-owned infrastructure
when self-construction is the most cost-effective option, would be
contrary to the command in section 254(h)(2)(A) that support be
``economically reasonable.''
We find this reasoning equally applicable to self-construction
undertaken by schools and libraries that participate in the E-rate
program, and we further find that the record now before us demonstrates
that support for the self-construction of high-speed broadband networks
will fulfill the mandate of section 254(h)(2)(A). As explained above,
for example, we are adopting safeguards to ensure that self-
construction is available only in limited circumstances when it is
demonstrated to be the most cost-effective solution to obtain high-
speed broadband. The record shows that under these circumstances,
support for self-construction will be ``economically reasonable,''
while also fulfilling the statutory mandate that we enhance, ``to the
extent technically feasible . . ., access to advanced
telecommunications and information services for all public and
nonprofit elementary and secondary classrooms . . . and libraries.''
39. Self-construction can be a useful tool for some schools and
libraries when they receive insufficient responses to their FCC Form
470 and associated requests for proposals (RFPs). Testing the benefits
of allowing self-construction, the Commission permitted applicants to
construct their own networks in the Rural Health Care Pilot Program
that preceded the Healthcare Connect Order. Eight of the 50 pilot
program participants elected to use support for self-construction for
parts of their networks, with two of those participants opting to
construct their whole networks. The participants found self-
construction to be a useful tool for cost-effective network deployment.
Because of the success of the Rural Health Care Pilot Program, the
Commission adopted rules permitting self-construction, subject to
certain safeguards, for the Rural Health Care Program participants in
the Healthcare Connect Order. We follow the model the Commission
adopted in the Healthcare Connect Order here, to ensure that the Fund
supports self-construction only when it is the most cost-effective
option.
40. Some commenters express concern about the cost-effectiveness of
self-construction and the quality of service it would provide and
either oppose a self-construction option or request safeguards to
ensure that schools and libraries only have the option of self-
construction when it is the most cost-effective approach. Other
commenters argue that we should impose a cap on self-construction, as
the Commission did in the Rural Health Care Program. Additionally, NCTA
recommends that we only authorize funding for self-construction by
schools and libraries where they can demonstrate that (1) there are no
commercial alternatives; (2) there are no more cost-effective methods
to receive high-speed broadband; and (3) they have the expertise to
handle the burden of operating and maintaining a fiber network. For its
part, expressing concern about overbuilding, NTCA has argued that self-
construction should only be allowed where an applicant has sought
broadband services from existing providers and networks, and
connectivity is not available from those providers and their networks;
the existing provider is given the opportunity to demonstrate that it
can provide the broadband service at target speeds within 180 days;
there is a meaningful matching funds requirement; applicants are
prohibited from using revenue from excess capacity as a source of
matching funds; and applicants demonstrate that they have selected the
option that will be most cost-effective over the life of the asset.
41. We agree with many of the concerns expressed by commenters,
particularly those aimed at ensuring that self-construction is only
undertaken when it is the most cost-effective option, but we do not
agree with all of the limitations on self-construction suggested by
commenters. Therefore, we adopt safeguards ensuring that applicants
seek E-rate support for self-construction only when it is the most
[[Page 5967]]
cost-effective option, and requiring that they actually use the self-
constructed facilities, but do not adopt many of the other limitations
on self-construction suggested by commenters.
42. In allowing self-construction under certain circumstances, we
adopt several safeguards to ensure that the self-construction option
will be available only when it is necessary to enable applicants to
access fiber at cost-effective rates. First, as the Commission did for
the Rural Health Care Program, we allow self-construction only where
self-construction is demonstrated to be the most cost-effective option
after competitive bidding. USAC already has experience in evaluating
cost-effectiveness for large-scale projects from the Rural Health Care
Program. Applicants interested in pursuing self-construction must
solicit bids for both service and construction in the same FCC Form 470
and must provide sufficient detail so that cost-effectiveness can be
evaluated based on the total cost of ownership over the useful life of
the facility for applicants who pursue the self-construction option. As
the Commission did in the Healthcare Connect Order, we permit
applicants who have received no bids on a services-only posting to
pursue a self-construction option through a second posting for the same
funding year.
43. Second, as with applicants that seek E-rate support for dark
fiber, to ensure that we are paying for necessary services, applicants
may only receive funding for self-construction if the facilities are
built and used within the same funding year. Pursuant to the
prohibition against reselling service purchased with E-rate discounts,
applicants may only receive E-rate support for services that they use.
In Section II.B.1, we codified a limited exception to allow funding for
special construction charges for projects started up to six months in
advance of the funding year, provided the following conditions are met:
(1) The construction begins only after selection of the service
provider pursuant to a posted FCC Form 470 (or any successor form); (2)
a category one recurring service must depend on the installation of the
infrastructure; and (3) the actual service start date is after the
start of the funding year (July 1). This exception applies to self-
construction. As we do with dark fiber, we will also allow applicants
to receive up to a one-year extension of the service start date if they
demonstrate that construction was unavoidably delayed due to weather or
other reasons.
44. Third, the E-rate program rules require applicants to secure
all of the resources necessary to make effective use of the services
they purchase. We are confident that allowing schools and libraries to
select a self-construction option with these meaningful safeguards will
give applicants that have been unable to find providers willing to
build affordable high-speed connections another option for purchasing
such connections.
45. We do not adopt NTCA's proposals that we give existing
providers a separate opportunity to demonstrate that they are able to
provide service at the targeted speeds, because to do so would
interfere with the competitive bidding process, which is the E-rate
program's primary tool for ensuring schools and libraries select the
most cost-effective option. Moreover, because E-rate applicants'
requests for bids are publicly available, providers all have an equal
opportunity to bid to provide E-rate services, and we expect that where
there are existing providers and networks capable of providing service
at the targeted speeds, they will be well situated to offer very
competitive pricing through the competitive bidding process.
46. At this time, we also decline the suggestion that we set a cap
on the amount of funding available for self-construction projects. The
first goal we adopted for the E-rate program in the E-rate
Modernization Order is ensuring that schools and libraries have
affordable access to high-speed broadband. The record is clear that
self-construction can provide one method for some schools and libraries
to achieve that goal. Setting a cap on self-construction would create
funding uncertainty for those schools and libraries that want to
explore whether self-construction would be the most cost-effective
option for them. In recognition of commenters' concerns about the
amount of funding spent on self-construction above, we have directed
USAC and the Bureau to report on the impact on the Fund of special
construction charges, including those for self-construction.
47. We also decline to adopt USTelecom's suggestion that, if we
make a self-construction option available, we target it to schools and
libraries that do not have broadband and are located in rural areas. We
do expect that the self-construction option will be most appealing to
schools and libraries in rural areas that have not been able to
purchase affordable high-speed broadband. We also expect that providers
that already provide fiber-based services to a school or library should
almost always be able to offer the most competitive pricing to that
school or library. However, we decline to limit the self-construction
option to applicants without broadband and in rural areas because there
are schools and libraries that currently have broadband access,
including in non-rural areas, that may be able to purchase more
affordable broadband services if they take advantage of the self-
construction option. Moreover, having self-construction as an option
for all schools and libraries will help drive competition, thereby
maximizing the cost-effective use of E-rate funding, which is one of
the goals that we have adopted for the program.
48. A commenter raised concerns that permitting self-construction
of networks could violate the Antideficiency Act because it would
require long-term commitments. Consistent with the rules of the E-rate
program, applicants will receive funding for self-construction for one
funding year at a time only, so there is no danger of long-term,
unfunded commitments that could violate the Antideficiency Act.
3. Additional Discounts When States Match Funds for High-Speed
Broadband Construction
49. To break down barriers to high-speed broadband access in rural,
Tribal, and other unserved areas, we will provide additional category
one funding to match state funding for special construction charges to
connect schools and libraries to high-speed broadband services that
meet the long term capacity targets we adopted in the E-rate
Modernization Order. The record demonstrates that additional funds are
needed for fiber builds and that states can play a powerful role
catalyzing construction of high-speed broadband connections to schools
and libraries. For example, the state of North Carolina has invested
approximately $150 million in broadband deployment and, as a result of
this investment, 98 percent of North Carolina schools have a fiber
connection. Maine has been able to connect a significant portion of its
schools by constructing its own fiber loop. Additionally, California
recently budgeted $26.7 million for grants for last-mile build-out
projects for public school districts, county offices of education, and
direct-funded charter schools.
50. In light of the role states can and do play in spurring
broadband connectivity, some commenters suggested that we increase the
discount rate for one-time capital investments to build out statewide
fiber networks, while others suggested a separate fund or priority for
capital investments. We agree that states are well-situated to
[[Page 5968]]
bolster high-speed broadband construction to schools and libraries. To
encourage state participation, beginning in funding year 2016, we will
increase an applicant's discount rate for special construction charges
up to an additional 10 percent in order to match state funding the
applicant receives on a one-dollar-to-one-dollar basis. Working in
tandem, this additional state and E-rate program funding will reduce
the money owed by applicants for what would otherwise be the
applicant's non-discount share to connect schools and libraries to
high-speed broadband services. By way of example, an applicant with a
90 percent discount rate would receive its 90 percent discount on the
E-rate eligible construction and, if the state provided an additional
contribution to the project (such as 5 percent of the total project
cost), the Fund will match the state's contribution (here, an
additional 5 percent of the total project cost). A network with a 60
percent discount rate, would receive its 60 percent discount plus an
additional 10 percent if the state were to contribute 10 percent of the
cost of the build-out. States may contribute more than 10 percent
funding to the project but the E-rate program will limit its match to
10 percent of the project cost (in addition to the existing program
discount rate). Because this match will only be available for special
construction charges, applicants should create separate funding
requests on their FCC Forms 471 for special construction and for
recurring charges. As we monitor the impact of this category one match
on the E-rate program, we may consider increasing the maximum match.
51. We expect this additional funding will encourage states to
identify high-speed connectivity gaps--those schools and libraries that
do not have access to affordable high-speed connectivity--and address
them. We recently aggregated the data submitted in the E-rate
modernization proceeding into two maps that allow users to view the
percentage of public schools with fiber connectivity at the district-
wide level and the number of annual visits to the library system. In
order to assist states in identifying the gaps in their high-speed
connectivity and compare their success at closing those gaps with other
states, we will maintain and continue to update those maps through at
least the next three funding years. Furthermore, consistent with the
reporting and transparency provisions we adopted in the E-rate
Modernization Order, we will work to populate the maps with more
detailed information based on the E-rate applications received
beginning in funding year 2015.
52. In recognition of the unique government-to-government
relationship of Tribal nations to our federal government, and the
challenges that Tribal nations face in obtaining broadband for their
schools and libraries, we will match funding for construction of high-
speed connections for Tribal schools and libraries from states, Tribal
governments, or other federal agencies. Schools operated by or
receiving funding from the Bureau of Indian Education and schools
operated by Tribal Nations will also be eligible to receive matched
funds from these additional sources. Eligible libraries that are funded
by or operated by Tribal governments will also be eligible for these
additional sources of matched funds. As with non-Tribal schools and
libraries, we will provide an additional match of up to 10 percent for
high-speed connection construction that meets our E-rate connectivity
targets.
53. A few commenters have expressed concern that by allowing this
limited matching program, some applicants will not be required to pay
for any portion of the special construction charges eligible for such a
match, and that requiring applicants to pay their non-discounted share
is an important safeguard in the E-rate program. We decline to require
that some portion of the non-discount share be paid by the E-rate
applicant when the state government, or where applicable another
federal agency or tribal government is willing to pay some or all of
the applicant's non-discount share of special construction charges. Our
current rules already allow for state agencies to pay the full amount
of an applicant's non-discounted share of E-rate supported services,
and therefore the matching program does not create additional concerns
in this regard. To the extent that another governmental entity pays a
portion of the cost of the E-rate supported service, that entity will
have an incentive to ensure that the applicant engages in cost
effective purchasing. However, as with the other options we adopt to
increase broadband connectivity to schools and libraries, we also
establish some limitations to safeguard the E-rate program. First, to
ensure that this funding promotes adequate connectivity, only projects
that provide broadband that meets the capacity goals and measures that
we adopted in the E-rate Modernization Order will be eligible for the
matching funding. In addition, to prevent excessive or duplicative
funding during a high-speed broadband connection's useful life, any
school or library connection that is built with matching funds will be
ineligible to receive additional matching funds for special
construction to the same buildings from the E-rate program for 15
years.
C. Ensuring Affordable Broadband Service to Schools and Libraries in
High-Cost Areas (WC Docket No. 10-90)
54. To ensure that schools and libraries have access to affordable
broadband service in high-cost areas, we establish an obligation for
recipients of high-cost support to offer broadband service in response
to a posted FCC Form 470 to eligible schools and libraries at rates
reasonably comparable to rates charged to schools and libraries in
urban areas for similar services. We agree with commenters that such an
obligation will assist us in narrowing the connectivity gap between
rural and urban schools and libraries and help rural schools and
libraries achieve the connectivity targets we adopted in the E-rate
Modernization Order.
55. In the USF/ICC Transformation Order, 76 FR 73829, Nov. 29,
2011, the Commission unanimously stated its expectation that eligible
telecommunications carriers would offer broadband to community anchor
institutions in rural and high-cost areas at speeds greater than the
minimum broadband performance standards. The Commission further stated
its expectation that eligible telecommunications carriers would provide
such offerings ``at rates that are reasonably comparable to comparable
offerings to community anchor institutions in urban areas.'' In the
April 2014 Connect America Order and FNPRM, 79 FR 39163, July 9, 2014,
we sought comment on how best to ensure that this expectation is
fulfilled. Having developed a more fulsome record on this issue, we
conclude that establishing a defined obligation for recipients of high-
cost support to offer broadband service at affordable rates to
requesting schools and libraries is the most effective way to ensure
that this expectation is fulfilled for schools and libraries, and
thereby ensure that the high-cost program is working in harmony with
the E-rate program.
56. There is record support from stakeholders representing schools
and carriers for obligating high-cost recipients to offer broadband
services to schools and libraries. For example, the Schools, Health &
Libraries Broadband (SHLB) Coalition and the State E-rate Coordinators
Alliance (SECA) recommend ``that recipients of Connect America Fund
funding should be required to serve anchor institutions with high-speed
bandwidth as a
[[Page 5969]]
condition of receiving funding.'' Similarly, a group comprised of rural
carrier associations, including NTCA--The Rural Broadband Association
and WTA--Advocates for Rural Broadband, supports a ``requirement that
any USF/CAF recipient offer [broadband] services . . . to most, if not
all, anchor institutions in the supported areas.'' Other commenters
urge the Commission to ensure that the high-cost program brings
affordable broadband services to schools and libraries in rural areas.
57. Imposing an obligation on recipients of high-cost support to
offer affordable high-speed services in response to a posted FCC Form
470 to schools and libraries also makes the most efficient use of
limited universal service support while ensuring affordable access to
broadband service to eligible schools and libraries. In high-cost, hard
to serve areas, we expect that recipients of high-cost support will be
best situated to offer affordable broadband service to eligible school
and libraries. Obligating these recipients to offer affordable services
to schools and libraries in high-cost areas increases the likelihood
that schools and libraries will receive affordable broadband service at
the lowest cost to the E-rate program. At the same time, this
obligation decreases the likelihood that limited E-rate support will be
spent to overbuild the networks of high-cost recipients in some rural
and high-cost areas while schools and libraries in other high-cost
areas remain unconnected.
58. We are not persuaded by those commenters that argue against any
obligation to offer broadband services to anchor institutions. For
example, USTelecom argues that the obligation to provide service should
not apply when additional construction is required to connect an anchor
institution. We conclude, however, that eligible telecommunications
carriers (ETCs) subject to this obligation remain free to charge
reasonable special construction charges to schools and libraries, and
those schools and libraries, in turn, will be able to receive support
for those charges through the E-rate program. Consequently, there is no
reason that this obligation should not apply in those instances when
additional construction is required to connect a school or library.
While we allow special construction charges to be funded by the E-rate
program, those charges would be limited to what is necessary to provide
the additional capacity to the requesting school and library from
existing fiber backhaul in the vicinity of the school or library:
essentially, the incremental cost of a spur to serve the school or
library. Price cap carriers that elect to make a state-level commitment
for Connect America Phase II model-based support will be required to
report annually the geocoded locations where service is newly
available, so we will be able to identify where service meeting our
targets should be available for schools and libraries.
59. We also are not persuaded by the Utilities Telecom Council
argument that the Commission should refrain from adopting set standards
for anchor institutions until more data is available and the need for
support for anchor institutions is better understood. The Commission
expressly established a performance goal of ensuring universal
availability of broadband for anchor institutions in the USF/ICC
Transformation Order. With respect to schools and libraries, the
Commission already has adopted defined connectivity targets for schools
and libraries based on comments in the record. Our action to impose
this obligation on high-cost recipients is designed to ensure that the
high-cost and E-rate programs work effectively together. We therefore
are not persuaded by ADTRAN's argument that we should rely only on the
E-rate program to ensure increased bandwidth and relative affordability
for anchor institutions. Our record indicates that more needs to be
done to close the connectivity gap so that schools and libraries in
rural, high-cost areas can meet our connectivity goals. We conclude
that obligating recipients of high-cost support to offer broadband
services in response to a posted FCC Form 470 to eligible schools and
libraries at affordable rates is an economically efficient method for
us to fulfill the universal service mandate and meet our connectivity
goals.
60. Under the obligation we establish here, high-cost recipients
will be obligated to bid on category one telecommunications and
Internet access services in response to the posting of an FCC Form 470
requesting such services for eligible schools and libraries located in
the areas where the carrier is receiving high-cost support. Further, to
ensure that schools and libraries in rural and high-cost areas receive
reasonably comparable services at rates reasonably comparable to those
services paid by libraries and schools in urban areas, we also take
steps to establish reasonably comparable benchmarks for broadband
services offered to schools and libraries by high-cost recipients.
61. Applicability. This obligation to offer broadband service in
response to a posted FCC Form 470 to schools and libraries will apply
to all recipients of high-cost support that are subject to broadband
performance obligations to serve fixed locations--specifically, rate-
of-return carriers that receive support from the high-cost program,
price cap carriers that elect to make a state-level commitment for
Connect America Phase II model-based support, price cap carriers
serving the non-contiguous United States that elect to receive frozen
support in lieu of model-based support for Phase II, and competitive
bidders that are awarded support in the Connect America Fund Phase II
competitive bidding process. As a condition of receiving high-cost
support, carriers receiving high-cost support must submit bids in
response to the posting of an FCC Form 470 requesting broadband service
to an eligible school, library or consortia located in the geographic
area where the carrier receives high-cost support. The obligation to
bid on broadband service in response to a posted FCC Form 470 extends
only to those schools, libraries and consortia that are eligible for
participation in the E-rate program and that seek bids on category one
broadband services in a given funding year by posting an FCC Form 470.
The Bureau may refer any carrier that refuses to bid in response to a
request from an eligible school or library to provide category one
services at rates reasonably comparable to those paid by libraries and
schools in urban areas to the Enforcement Bureau for further action as
appropriate.
62. Minimum Levels of Service. We require high-cost support
recipients to offer high-speed broadband connections sufficient to meet
the targets set forth in the E-rate Modernization Order, when requested
by schools and libraries in a posted FCC Form 470. Consistent with the
approach established for the Connect America Fund, we emphasize that
providers remain free to offer a range of service offerings to meet the
needs of their customer base, in addition to the service offering
meeting the minimums we established in the E-rate Modernization Order.
Eligible schools and libraries remain free to request and purchase the
services that meet their specific needs. Our intention here is to
create a framework that will enable schools and libraries to have
access to services meeting the E-rate program's connectivity targets at
affordable rates.
63. Timing. This obligation to offer broadband services in response
to a posted FCC Form 470 to eligible schools and libraries for price
cap carriers that elect to make a state-level commitment for Connect
America Phase II model support, price cap carriers serving the non-
contiguous United States that elect to receive frozen support in lieu
of
[[Page 5970]]
model-based support for Phase II, and existing rate-of-return carrier
ETCs will become effective no sooner than E-rate funding year 2016,
which commences July 1, 2016. For ETCs that are awarded Phase II
support through a competitive bidding process, this obligation will
become effective in the first E-rate funding year after their support
is authorized. We recognize, however, that it may not be possible to
offer service meeting the E-rate modernization connectivity targets as
soon as this obligation becomes effective in geographic areas that do
not yet have the necessary fiber backhaul facilities. In the Connect
America Order we adopt today, we establish graduated interim milestones
for price cap carriers accepting the offer of Phase II model-based
support, with the first enforceable interim deadline at the end of
calendar year 2017 and completion of deployment not required until
December 31, 2020. We recognize that construction to extend fiber
deeper into networks to meet Phase II obligations will be an ongoing
project over the course of the Phase II term for price cap carriers
accepting the state-level commitment. It is likely, therefore, that
Phase II construction to extend fiber facilities to the general
vicinity of a particular school or library seeking more robust capacity
through the E-rate program will not occur until 2017 or later. We do
not intend to disrupt the orderly implementation of the construction
cycle for Connect America Phase II. To the extent additional network
construction is necessary to reach a requesting school or library, we
encourage high-cost recipients expeditiously to complete deployment of
facilities and ensure the necessary fiber backhaul is installed where
needed.
64. We will continue to provide a more flexible approach to rate-
of-return carriers, which are obligated to extend broadband service
upon reasonable request for service and within a reasonable amount of
time. Consistent with the framework established in the April 2014
Connect America Fund Order, a request to serve would be deemed
reasonable to the extent anticipated revenues (both end user revenues
and other federal and state universal service support under existing
rules) are sufficient to cover the incremental cost of extending
service to the requesting school or library. If the available revenues
are insufficient, then a request would not be deemed reasonable. To the
extent any high-cost recipient has the facilities in place to provide
service at the requisite speeds to an eligible school or library in
geographic areas where it receives funding, we expect such carrier to
offer such service in response to a request from such school or library
in the funding year that the request is made.
65. Reasonable Comparability Benchmarks. To ensure that schools and
libraries are able to purchase broadband offerings at rates that are
reasonably comparable to similar offerings to schools and libraries in
urban areas, we direct the Bureau to develop national benchmarks for
broadband services offered to schools and libraries. Offering services
in response to a posted FCC Form 470 at the reasonable comparability
benchmarks will be a condition of receiving high-cost support for those
ETCs subject to this obligation, and will not constitute a rebate to
the price of service. The benchmark price offered will constitute the
full retail price before taking into account any universal service
support.
66. The April 2014 Connect America Order and FNPRM sought comment
on how best to ensure that we fulfill the expectation that schools and
libraries are able to purchase broadband offerings at rates that are
reasonably comparable to similar offerings to schools and libraries in
urban areas. The Bureau should build upon this record by seeking more
focused comment on proposed benchmarks. Specifically, the Bureau should
rely upon data obtained from FCC Forms 471 submitted by urban schools,
libraries, and consortia to develop these reasonable comparability
benchmarks, as well as any other publicly available data sources, and
should provide an opportunity for public comment on its proposed
methodology and benchmarks before adopting the benchmarks. Upon
adoption of such benchmarks, recipients of high-cost support subject to
an obligation to provide fixed broadband will be obligated to offer
services at or below these benchmarks in response to the posting of an
FCC Form 470 requesting broadband service to an eligible school or
library in the geographic areas where the carrier receives high-cost
support for the next funding year. The Bureau should use a similar
methodology to prepare benchmarks in subsequent funding years.
67. We also believe that this approach will ensure that support to
those ETCs required to offer the benchmarked rates will continue to be
sufficient for purposes of section 254. While we recognize that capital
costs are higher in high-cost areas, no commenters suggest that
recurring operating costs are significantly higher in high-cost areas
than compared to urban areas. Because E-rate applicants can seek
support for special construction charges, as that term is used in the
E-rate context, ETCs subject to the benchmark requirements will be able
to assess reasonable special construction charges to schools and
libraries that solicit bids for broadband services. Moreover, the
national benchmarks developed by the Bureau will be reasonably
comparable, but not identical, to rates charged for similar offerings
to schools and libraries in urban areas. The combination of the
availability of special construction charges and reasonable
comparability benchmarks will ensure that universal service support
received by ETCs remains sufficient for purposes of section 254.
68. Tariffed Services. Those carriers that offer broadband services
pursuant to tariffs must comply with our tariffing rules implemented
pursuant to sections 201 through 203 of the Act. The benchmark rates
established pursuant to this Order for broadband services provided to
schools and libraries will likely vary from rates charged for similar
services to other customers. To the extent this is the case, we
evaluate whether it potentially raises concerns under section 202(a),
which forbids ``unreasonable discrimination'' in rates charged to
customers, and section 201(b), which requires rates to be ``just and
reasonable,'' as well as our tariffing rules. For the reasons described
below, we conclude that the action we take today does not raise such
concerns.
69. To ensure that incumbent local exchange carriers can offer
services to schools and libraries consistent with the requirements of
this Order and the Act, we rely on the flexibility provided under
section 201(b) to decide that it is just and reasonable for carriers to
provide broadband services at rates specific to the class of
educational customers to which carriers must offer benchmarked rates.
Section 201(b) provides that ``communications by wire or radio subject
to this chapter may be classified into day, night, repeated,
unrepeated, letter, commercial, press, Government, and such other
classes as the Commission may decide to be just and reasonable, and
different charges may be made for the different classes of
communications.'' Accordingly, in conjunction with the process for
establishing the benchmark rates, we delineate here, pursuant to
section 201(b) of the Act, a class of educational customers to whom the
benchmarked rates may be offered. We delegate authority to the Bureau
to provide other guidelines as necessary to implement the objectives
described above as part of
[[Page 5971]]
the process of seeking public comment on the analysis underlying the
rate benchmarks. For example, the Bureau may consider establishing
streamlined procedures to enable those carriers that offer broadband
services pursuant to tariffs to easily revise or re-file new interstate
tariffs. Additionally, the Bureau should determine whether there may be
certain carriers for whom application of the rate benchmarks would be
impracticable or unduly burdensome and, if so, if there are alternate
methods to ensure that such carriers are providing eligible E-rate
applicants with rates that are reasonably comparable to similar
offerings to schools and libraries in urban areas.
70. We find that it is just and reasonable under section 201(b) for
carriers to provide service at rates specific to the class of
educational customers to which carriers must offer benchmarked rates.
This action furthers significant universal service principles that
schools and libraries obtain access to advanced telecommunications
services and access to telecommunications services and information
services at rates that are reasonably comparable to those charged for
similar services in urban areas. By making a benchmarked rate available
to eligible schools and libraries, in high-cost areas we will ensure
that the universal service program complies with these statutory goals,
as well as the Commission's stated expectation that eligible
telecommunications carriers provide broadband to community anchor
institutions at reasonably comparable rates. Based on the record, we
proceed incrementally, focusing for now specifically on schools and
libraries rather than on broader categories of entities within the
scope of section 254's objectives. By requiring carriers to offer
services at rates specific to schools and libraries, we will advance
the objectives of section 254; that fact, coupled with the flexibility
afforded the Commission under the ``just and reasonable'' standard of
section 201(b), persuades us that carriers' provision of service at
rates specific to schools and libraries is not at odds with section
201(b). We conclude for the same reasons that carriers' compliance with
the requirements adopted here do not violate section 202(a).
III. Adjusting The E-Rate Cap To Meet The Program's Connectivity Goals
(WC Docket 13-184)
71. Ensuring that schools and libraries will be able to meet the
high-speed connectivity targets we have set for the E-rate program will
require a combination of continued efforts to lower the prices paid for
school and library broadband connectivity and an increase in E-rate
support necessary to meet growing bandwidth demands of schools and
libraries. In this Order and in the E-rate Modernization Order, we have
taken several steps to maximize the cost-effectiveness of E-rate
supported purchases, including a pricing transparency requirement and
several program changes in this Order that will have the effect of
increasing competitive options, and thus lowering prices, for schools
and libraries to meet their connectivity needs. However, the record
demonstrates that as more schools and libraries upgrade their broadband
infrastructure and expand robust Wi-Fi access into every classroom and
library space, bandwidth demands of schools and libraries will outpace
any expected savings that can be accomplished through program
efficiencies and declining per megabit pricing. Even with a more
efficient E-rate program that achieves substantial cost-savings,
funding above the current E-rate cap will be necessary if we seek to
connect more schools and libraries at the targeted bandwidth levels.
Based on an extensive record that includes more than 2,800 comments,
600 ex parte presentations, and two cost estimates, we raise the annual
E-rate program cap to $3.9 billion in funding year 2015. Commenters
stress the importance of providing certainty to schools and libraries
that sufficient funding will be available for both connectivity to and
within schools and libraries. For the reasons explained below, we agree
that raising the cap, in conjunction with the other work we have done
to improve E-rate purchasing, is the best way to provide such certainty
as well as to meet the goals we have set for the program.
72. The E-rate funding cap has gone virtually unchanged for 17
years. In 1997, the Commission adopted a $2.25 billion annual funding
cap for the E-rate program, based on demand estimates provided by
McKinsey, Rothstein Thesis, and the National Commission on Library and
Information Science (NCLIS) Report. Since then, however, actual demand
for E-rate support has exceeded that cap in all but one funding year.
In recent funding years, there has been little or no funding available
for the internal connections necessary to deliver broadband into
classrooms and libraries.
73. Throughout the program's history, the Commission has made
various efforts to spread E-rate dollars to more applicants, such as,
for example, by limiting applicants to applying for discounts on
internal connections to twice every five years. In 2010, it also began
adjusting the E-rate cap to account for annual inflation to try to
gradually align the program's needs with available funding. Even with
these changes, the program, while successful, was falling short of its
potential. Based on the record created in response to the E-rate
Modernization NPRM, earlier this year we took steps to restructure the
E-rate program. In the E-rate Modernization Order, we phased out
support for outdated, non-broadband services, shifting the focus to
high-speed broadband, with a particular focus on how the E-rate program
distributes funding for internal connections. We also made needed
reforms to encourage cost-effective purchasing, including setting
sufficient budgets for internal connections, known as category two
services, and establishing pricing transparency. These major policy
changes were a necessary first step on the path to ensuring that the
program has the necessary resources to meet the goals we have adopted
for the E-rate program.
74. At the same time, we sought comment on the future funding
levels needed for the E-rate program in order to meet the established
goals. We invited stakeholders to submit data on the gap between
schools' and libraries' current connectivity and the specific targets
set out in the Order, as well as information on how much funding would
be needed to bridge that gap within the E-rate program. In August, the
Bureau released a Staff Report summarizing a portion of the large
amount of data gathered in the record in order to assist parties
considering responses to the E-rate Modernization FNPRM, 79 FR 49036,
August 19, 2014. In conjunction with the Staff Report, Commission staff
released two maps providing a visualization of the fiber connectivity
to schools and libraries based on data in the record, and have
continued to update those maps to reflect additional data stakeholders
have submitted.
75. Based on the substantial record developed in this proceeding,
in this section we set out the anticipated costs to meet the goal of
ensuring affordable access to high-speed broadband sufficient to
support digital learning in schools and robust connectivity for all
libraries. First, in order to provide certainty and administrative
simplicity to applicants and to the Fund, we extend for three
additional years, with a small modification, the category two budget
approach we adopted in the E-rate Modernization Order for funding costs
for internal connections for
[[Page 5972]]
schools and libraries. Taking this change into account, we set out the
projected costs of category two services to the E-rate program over the
next five funding years. Next, we discuss the factors that will impact
the cost of category one services in order to ensure schools and
libraries can meet the connectivity targets we adopted in the E-rate
Modernization Order. Based on these projections, and to help provide
more certainty regarding the availability of E-rate support, we raise
the annual E-rate cap to $3.9 billion beginning in funding year 2015.
Setting the cap at this level is based on a substantial amount of data
and analysis and reflects our judgment of the amount of funding that
will be necessary to meet the long-term broadband connectivity targets
for all schools and libraries, including internal connections, non-
recurring infrastructure upgrades, and significant increases in monthly
recurring Internet access charges.
A. Ensuring Certainty for Applicants Seeking Support for Category Two
Services
76. Schools. First, we agree with those commenters that stress the
importance of predictability and certainty by extending the applicant
budgets for schools established in the E-rate Modernization Order for
category two services. In July, we adopted a two-year test period for
the pre-discount applicant budgets for category two services for
funding years 2015 and 2016. Applicants that receive commitments for
category two support in either of those funding years will be subject
to the five-year budget. To make the test period for the budget-based
approach to awarding category two support consistent with the full
five-year cycle that such budgets are based on, we expand the test-
period for three additional years through funding year 2019.
77. In the E-rate Modernization Order, we explained that we were
confident that we could meet the $1 billion target for two years.
However, we noted that the longer-term funding available for category
two budgets is linked to the broader question of the long-term funding
needs of the E-rate program, and we sought comment on these funding
needs of the program. As the record demonstrates, without the changes
that we make today, applicants who do not seek or receive category two
support in funding years 2015 or 2016 would face uncertainty about
whether they will be able to receive E-rate support to meet the Wi-Fi
needs of their students and patrons in later years. By addressing the
longer-term funding needs of the program and extending these category
two budgets for three additional funding years in this Order, we help
ensure sufficient funding for category two services, increase certainty
for applicants about the availability of funding beyond funding years
2015 and 2016, and simplify the administration for USAC.
78. A sufficiently funded, multi-year budgeted approach for
category two funding provides both certainty and flexibility for
applicants. This combination allows applicants to request support only
for what they need when they need it, rather than seek funding for
unnecessary components out of fear that there will not be support in
the next funding year. It also helps us achieve our goal of ensuring
affordable access to high-speed connectivity within schools and
libraries, by providing broader and more equitable support for the
internal connections necessary to support digital learning.
79. Some commenters argue the per-student budgets should be
discontinued and replaced with a funding cap increase alone. We
disagree and restate our firm belief that raising the funding cap alone
will not ensure that schools and libraries can purchase affordable
internal connections. Raising the cap without any additional policies
or limits on how the program funds internal connections does not
address the challenges faced by applicants created by widely variable
costs for similar services, inefficient network planning, or incentives
at the top discount levels of the E-rate program to engage in wasteful
purchasing. We also firmly disagree with the assertion that per-student
budgets provide ``[t]oo little discount funding'' to all applicants and
are inequitable. These budgets maintain the program's historic focus on
the highest poverty schools and libraries by continuing to use
concentrations of poverty to determine the discount level available and
the priority of applicants. At the same time, the five-year budgets
promote cost-effective spending by focusing E-rate dollars on the
internal connections that are essential for wireless networks, and
therefore, allow us to provide a sufficient and predictable amount to
deploy Wi-Fi to students and library patrons throughout the nation, and
not just to the applicants at the highest discount levels.
80. We reaffirm the $150 per student pre-discount budget, with a
$9,200 pre-discount funding floor, as a reasonable limit on the amount
of E-rate discounts available to schools, consistent with data in the
record showing local area networks (LAN) and wireless LAN (WLAN)
deployments in classrooms across a number of school districts across
varied geographies. In conjunction with other measures taken in the E-
rate Modernization Order, such as pricing transparency to help arm
applicants with information to make smart purchasing decisions and
lowering the maximum discount rate from 90 to 85 percent to encourage
applicants to pursue the most cost-effective options, this $150 per
student budget provides a sufficient amount of support for the
necessary internal connections. Some applicants urge us to recognize
that the internal connections needs of schools are not uniform. While
the E-rate Modernization Order recognized that there are different
construction materials or variations in labor costs, the majority of
costs for LANs are for commodity equipment, which sees nationwide
pricing and competitive markets. We again decline to set out separate
budgets for schools in different situations, apart from the adjustments
for poverty and rurality that our system of discounts already provides.
We expect the Bureau to closely monitor these budget levels as
described below.
81. We take this opportunity to revisit the issue of how schools
should count students that attend multiple schools. Consistent with our
desire to ensure sufficient funding for the number of students using
the internal connections at a school, in the E-rate Modernization Order
we explained that ``[s]tudents who attend multiple schools . . . may be
counted be both schools in order to ensure appropriate LAN/WLAN
deployment for both schools.'' We now clarify that schools should
include in their student count, for purposes of calculating category
two budgets, students that attend part-time only when doing so
regularly increases the maximum number of students on the school
premises at the same time, during the school day. This means that
students who attend a virtual class that originates at a school, but
who are not on the school premises cannot be counted in that school's
student count. We also note that students attending after-school
activities or after-school events cannot be included in the student
counts. Schools should also be prepared to demonstrate their student
count calculations during PIA review and if they count part-time
students to demonstrate how those students regularly increase the
maximum number of students on the school premises at the same time
during the school day.
82. Libraries. We also extend for three additional funding years,
with a small upwards adjustment for libraries in more urbanized areas,
the pre-discount
[[Page 5973]]
budget for libraries that we adopted for funding years 2015 and 2016 in
the E-rate Modernization Order. We adopted a $2.30 per square foot pre-
discount budget for libraries in that Order, with a funding floor of
$9,200, representing a reasonable pre-discount budget level, consistent
with data submitted into the record prior to its adoption. Having
sought further comment specifically on the issue of user density in
urban libraries because ``the record of library funding needs for
internal connections [was] not as robust as we would like,'' we now
adopt a separate budget of $5.00 per square foot for libraries located
in cities and urbanized areas with a population of 250,000 or more, as
identified by the Institute of Museum and Library Services (IMLS)
locale codes of 11, 12, and 21.
83. Calculating the library budget based on square footage
continues to provide the E-rate program a simple, fast, and efficient
mechanism for libraries and USAC, consistent with the Commission's
third goal for the program. There is broad support in the record for
the position that the library budget should be greater for urban
libraries, because these libraries serve more people per square foot
than other communities and Wi-Fi performance may be impacted by a high
density of users at one time. There is also support in the record for
considering the number of users or connected devices when setting the
category two library budget, particularly for large urban libraries. We
agree that usage density may increase the cost of internal connections.
However, as the record indicates, there is not a standardly reported
metric on the number of Wi-Fi users in libraries that would provide a
simple and predictable formula for all libraries. We therefore decline
to adopt the proposals that seek a different budget calculation based
on daily visitors or public computer users, because using those metrics
would impose new administrative burdens on libraries, would be
difficult to administer, could improperly incent purchasing unnecessary
public computers, and would delay application review by being difficult
to verify. Square footage continues to present the best option for
providing a sufficient budget for libraries that is simple for
applicants to calculate and simple for USAC to administer.
84. Because we agree that usage density increases the cost of
internal connections and the record supports a decision that usage
density is greater in large urban libraries, we elect to increase the
pre-discount per-square foot library budget for libraries in the most
densely populated areas to $5.00 per square foot over five years. The
Urban Libraries Council (ULC) suggests a category two pre-discount
budget of between $5.00 and $7.00 per square foot for urban libraries,
a number of other commenters support an increase to at least $4.00 per
square foot. We take into account this range of estimates that have
been submitted into the record, along with the lack of precise evidence
that would militate in favor of picking a specific estimate. As such,
in order to be fiscally cautious, we adopt a value toward the bottom
end of the range of $5.00 per square foot as the pre-discount budget
for the most urban libraries.
85. To determine which libraries get the benefit of the increased
per-square-foot budget, we look to the IMLS classification of
libraries. IMLS assigns locale codes in order to identify the type of
geographic areas in which a library outlet is located, using the same
methodology as the National Center for Education Statistics' Common
Core of Data datasets. It divides geographic areas into four
categories--city, suburban, town, and rural, each with three
subcategories. We agree with ULC's recommendation that we provide
higher funding per square foot for those libraries located in the most
densely populated areas using the IMLS locale codes of ``11--City,
Large,'' ``12--City, Midsize,'' and ``21--Suburb, Large.'' These three
locale codes capture urbanized areas within principal cities with a
population over 100,000 and those areas outside of a principal city,
but within an urbanized area with a population of over 250,000, which
are the most densely populated areas. These locale codes therefore
provide a reasonable proxy for identifying libraries that may see a
higher density of users per square foot. As described below, the Bureau
will continue to evaluate these library budgets for category two
services. We also take this opportunity to remind library applicants,
regardless of their category two budget levels or square footage, of
the obligation to select the most cost-effective service offered and to
consider price as the primary factor.
86. Our decision to extend both of these five-year pre-discount
budgets for schools and libraries by three additional funding years
reflects our concern that using applicant budgets for only two funding
years will be inadequate to provide certainty for applicants making
purchasing decisions. Additionally, it reflects our finding that these
budgets are sufficient and that extending them will simplify the
administration of the program and provide clarity and certainty to
schools and libraries. We agree with commenters that extending the
applicant five-year budgets will increase certainty about how
applicants and certain services will be treated beyond funding year
2016 and whether funding will be available. We are particularly
concerned that applicants could decide to delay seeking funding for
needed internal connections in funding years 2015 or 2016 because they
would like to see if there is additional funding in funding year 2017.
Further, this extension simplifies administration of the program for
both applicants and USAC by treating all applicants the same,
regardless of when they receive E-rate support for category two
services.
87. To ensure that the applicant budget remains effective at
accomplishing our goal of ensuring affordable access to high-speed
broadband sufficient to support digital learning, we expect the Bureau
to monitor these applicant budgets and provide a report on their
sufficiency to the Commission before the opening of the filing window
for funding year 2019. This analysis is important for two reasons.
First, information demonstrating the success, or lack thereof, of this
approach to providing support for internal connections will provide the
Commission with data to determine if the category two budget approach
should be made permanent. Second, if the Commission does not extend the
budget approach beyond funding year 2019, the information learned
during the test-period will provide significant information to assist
USAC in making sure that category two requests continue to be cost-
effective.
88. Therefore, working with OMD and USAC, the Bureau shall analyze
the data from applicants for trends across different types of
applicants or regions of the nation, particularly those schools that
serve students with special education services. This may include
evaluation of FCC Form 471 pricing data received from applicants to
ensure that cost-effective offers are reaching applicants in all parts
of the country. In particular, our record on the costs for urban
libraries that see higher density bandwidth demands is not as robust as
our other data. Therefore, as part of our existing direction to seek
feedback on sufficiency of LAN/WLAN capacity, we also direct the Bureau
to analyze the applicant requests from funding years 2015 through 2018
for libraries serving different population sizes, so that we have
information needed to assess whether the category two library budget is
reasonable. The Bureau may consider including in its analysis passive
data measurements in order to measure the
[[Page 5974]]
impact of the number of users on the Wi-Fi deployments.
89. Basic Maintenance, Managed Wi-Fi, and Caching. Because we
extend these category two applicant budgets, we also extend the
eligibility for basic maintenance, managed internal broadband services,
and caching through funding year 2019. These services provide benefits
to applicants seeking flexibility in how to set up their networks, but
we had concerns about how to prevent unnecessary or wasteful spending
especially given that many managed Wi-Fi agreements run over multiple
years. The applicant budgets continue to ``mitigate some of our
concerns about waste or abuse'' as long as they are in effect. We
direct the Bureau to include these eligible services on the Eligible
Services List accordingly in funding years 2016 through 2019.
90. We also note commenters' concern that caching services and
managed Wi-Fi are additional costs for category two services not
accounted for in the budgets. We extend the eligibility of these
services in order to provide additional choices for applicants seeking
the most cost-effective technology options for their unique situations.
For instance, a small school district or library system without a
technology director may find managed Wi-Fi allows it to more quickly
deploy advanced LANs by spreading its costs over a multi-year contract
and relying on the technical expertise of the managed Wi-Fi provider.
Similarly, a school may decide that it is makes sense to incorporate
caching into its connectivity plans and wants to seek E-rate support
for those services. These services, however, are not essential
components for all applicants seeking to deploy Wi-Fi, and we therefore
do not further increase the applicant budgets to account for them.
91. Category Two Costs. We find that the $1 billion annual target
budget set for category two services in the E-rate Modernization Order
is sufficient to provide the E-rate support needed for a five-year
deployment of LANs and WLANs. In July, we stated that the question of
available funds for these five-year budgets was closely linked with the
long-term funding for the E-rate program. We therefore applied the
five-year budgets to applicants that received E-rate support for
category two services in funding years 2015 and/or 2016, pending
resolution of the program's overall funding needs. Having now extended
these category two applicant budgets for all applicants for three
additional funding years, we reaffirm the funding level for the E-rate
support for category two budgets, based on the analysis set out in the
E-rate Modernization Order. We also index the category two budget
target and the applicant budgets to inflation.
92. This $1 billion annual target for category two services
provides greater access to E-rate support for both schools and
libraries. From funding years 2008 through 2012, the program provided
E-rate discounts for internal connections of between $700 million and
$1.2 billion. However, this funding provided support for less than 11
percent of the more than 100,000 schools participating in the program
each year and less than four percent of public libraries. With the
adoption of pre-discount budgets sufficient to deploy LANs and WLANs
and a $1 billion target, the program will be able to support an average
of 10 million students each funding year at different discount levels,
providing broader and more equitable support across the nation.
Additionally, targeting a consistent amount of support each year allows
us to reduce fluctuations in the contribution factor and uncertainty
over availability of funding that had previously existed in the E-rate
program.
93. Although some commenters express concern that $5 billion in
category two support over five years is insufficient to reach the
schools and libraries at the lowest discount levels, we restate our
finding that the funding target will provide sufficient funding to
applicants seeking category two support. First, we disagree with
assertions from commenters that the EducationSuperHighway/CoSN Ongoing
Cost Model's $1.6 billion in annual costs for category two services is
the appropriate measure. That model was one of several data points used
in determining the category two budgets for schools. In particular,
commenters point to analysis done by Funds for Learning that assumes
all applicants will apply and all applicants will request the entirety
of their budgets each year. We disagree with these assumptions. In the
E-rate Modernization Order, we noted that some schools and libraries
will not seek funding and others will seek less than the full budgeted
amount. Additionally, the average size of the requests per student in
the lower discount levels is well below $150 per student, and we do not
expect a dramatic increase in the size of requests per student from
such applicants. We note, as one example, that data in the record
showed managed Wi-Fi contracts for as low as $19 per student annually,
which is less than 65 percent of the available budget over five years.
94. We recognize that there is pent up demand and that applicants
may seek a larger portion of the budget early on in the five-year
cycle, leaving applicants at the lower discount levels with some
uncertainty about future funding. However, by extending applicant
budgets for three more funding years and increasing the size of the E-
rate cap to help meet both category one and category two demand below,
we provide much-needed certainty to applicants, allowing them to take
advantage of the flexibility the five year budgets offer. Indeed,
providing needed flexibility is one of the benefits of these multi-year
budgets. School districts with a large number of schools may simply be
unable to deploy networks in every school for a number of reasons,
including their own budget match and the ability of a vendor to install
to every school. Similarly, applicants that request support for a
managed Wi-Fi solution may end up requesting just a portion of their
budget each of the five funding years, leaving additional funding for
applicants at a lower discount level. For these reasons, we expect
category two applicant requests to be reasonable and that the Bureau
will monitor these budgets closely.
B. Meeting Applicants' Needs for Category One Support
95. Having set an annual category two budget target of $1 billion,
we now turn our focus to determining how meeting the long-term
broadband connectivity targets that we set in the E-rate Modernization
Order will drive future funding needs for category one services. The
record demonstrates that growth in demand for category one funding will
be driven by a combination of: (i) Requests for support for non-
recurring infrastructure upgrades; and (ii) the growing demand for high
speed bandwidth connectivity to schools and libraries, both of which
will lead to increasing monthly recurring charges for WAN and Internet
connections. The increase in monthly recurring charges for WAN and
Internet connectivity will come from schools and libraries that already
have connections capable of meeting E-rate connectivity targets and
from those that are newly able to purchase high-speed connections as a
result of the changes to the E-rate program that we adopt today.
Moreover, by targeting funding to Wi-Fi in the E-rate Modernization
Order and extending the budgets for internal broadband connections in
this Order, we will ensure that more schools and libraries have robust
internal connections, which will fuel their demand for high-speed WAN
and Internet connectivity. Taking
[[Page 5975]]
into account data in the record and the anticipated savings from steps
we have taken to refocus E-rate funding on broadband and encourage
program efficiencies, we discuss these increasing costs for category
one services below.
1. Projecting Schools' and Libraries' Future Connectivity Demands
96. We first evaluate the future connectivity demands of schools
and libraries, both in terms of their needs for new infrastructure and
their needs for services provided over that infrastructure. On the one
hand, stakeholders report that prices per megabit for high-speed
broadband have consistently declined each year. At the same time, as
demonstrated below, increases in bandwidth demand greatly offset this
decline in per megabit pricing; thus, the total amounts paid by schools
and libraries for their recurring monthly broadband services will
continue to increase. Indeed, in a recent survey of school district
administrators and school technology leaders conducted by CoSN, many
schools signaled that they would need more bandwidth in the very near
future. For example, 83 percent of respondents expect to need
additional bandwidth over the next three years and almost two-thirds
report that they do not have sufficient bandwidth for the next 18
months. Moreover, the schools' anticipated demand is for significantly
greater bandwidth. Over the next 18 months, 25 percent of respondents
expect 100 to 500 percent bandwidth growth and another 24 percent
expect 20 to 100 percent bandwidth growth.
97. By working to ensure that schools and libraries have access to
affordable high-speed broadband connectivity, we also contribute to
their increase in demand for those high-speed connections. For example,
our commitment to consistently provide at least $1 billion in funding
for school and library Wi-Fi networks will fuel additional usage and
demand. As schools and libraries deploy increasingly robust Wi-Fi
networks, the ability of more students, teachers and library patrons to
use their schools' and libraries' internal networks will require the
delivery of greater bandwidth to those schools and libraries. For
instance, data from North Carolina demonstrate that some school
districts are seeing Internet bandwidth usage growth of nearly 50
percent on an annual basis, regardless of whether the school is
implementing a one-to-one device deployment initiative, is several
years into such a program, or lacks a specific program. Similar data
from Washington indicate that average annual usage growth was over 40
percent from 2009 and 2014.
98. In addition, earlier in this Order we adopt several policy and
administrative changes that will provide a range of options to support
more applicants' efforts to obtain sufficiently robust broadband
connectivity to their buildings. Encouraging schools and libraries to
undertake those types of projects and as a result closing the gap
between those schools and libraries with high-speed connections and
those without will further increase the demand for E-rate support. The
extent to which we are able to achieve the first goal that we set out
for the E-rate program--ensuring affordable access to high-speed
broadband sufficient to support digital learning in schools and robust
connectivity for all libraries--is highly dependent on how much
category one funding is available for schools and libraries to pay for
the upfront deployment costs of scalable connections to currently
unserved and underserved schools and libraries. While we take steps
above to encourage such deployment, the record clearly demonstrates
that the amount of money needed for such deployment is closely linked
to the number of additional schools and libraries that get connected to
high-speed broadband.
99. Based on the data in the record, we find that over a third of
schools do not have access to fiber to the building, and an even
greater percentage of libraries lack high-speed connectivity. While the
dataset underlying our calculations on fiber access does not contain
connectivity data from every school and every library across the
nation, it is an unprecedented and rich source of information about
school and library connectivity. Stakeholders have submitted data on
existing connectivity since the beginning of this proceeding in the
middle of 2013, and in August, Commission staff published the Fiber
Connectivity Maps, which continue to be updated with new data. We
therefore disagree with commenters that argue that we should wait for
additional data on the fiber connectivity gap or that the gap is so
small that it does not require additional funding to bridge it. Based
on the many sources in the record agreeing that there is a significant
connectivity gap to close, this dataset provides a reasonable baseline
on which to rely in order to ensure the E-rate cap is set sufficiently
high to provide certainty on future availability of funding necessary
to achieve long-term connectivity targets.
100. Based on the findings set out above, the record shows the
costs for category one services will increase over the next five years
as more schools and libraries get access to high-speed connections and
bandwidth demand continues to increase. We have an obligation to
balance having a specific, predictable, and sufficient support
mechanism with our ``responsibility to be a prudent guardian of the
public's resources.'' Using estimates in the record on the costs for
category one recurring and non-recurring costs consistent with our
findings above, we balance these two concerns by setting a cap on the
E-rate program that provides sufficient certainty of availability of
funds over the next five funding years, while limiting the impact on
end users in the near-term.
101. Commenters submitted two cost estimates on connectivity to
schools and libraries into the record: The ESH/CoSN Connectivity Model
and the SHLB Coalition Model. The ESH/CoSN Connectivity Model provides
a projection of both recurring and non-recurring costs for public
schools to meet the connectivity targets over five years. The model
takes into account data on current connectivity, predicted bandwidth
demand growth, declining recurring prices per megabit, and estimated
non-recurring prices to close the gap of schools without access to
high-speed connectivity. It also accounts for variation in connectivity
needs of differently-sized schools. Using these data, it estimates the
cost for five different scenarios, projecting differing costs depending
on the number of schools that become connected. ESH also filed a
supplementary analysis of the recurring costs for private schools and
libraries. The SHLB Coalition Model, prepared by CTC Technology &
Energy, sets out an estimate of capital expenditures needed to connect
fiber to unserved, eligible public schools, private schools, and
libraries. Using an engineering-based approach, the model divides the
nation into eight different standardized geographies, ranging from
dense urban areas to isolated schools in desert areas. Their model then
projects a low and a high estimate for non-recurring costs to connect
public and private schools in each of these different geographies, and
a separate estimate for the costs to connect libraries.
a. Recurring Costs
102. We first consider the modeled recurring costs for high-speed
connectivity. The ESH/CoSN Connectivity Model addresses recurring costs
for public schools, and its analysis is consistent with other evidence
in the record. For each of its five funding scenarios, the model
accounts for differing bandwidth needs by school
[[Page 5976]]
district size, service mixes, and pricing. Consistent with the data in
the record, it takes into account an annual decline in per megabit
pricing of approximately 10 percent and an annual increase in bandwidth
demand of up to 50 percent. As a result, it projects an increase in
pre-discount recurring costs from approximately $2.1 billion in funding
year 2015 to $2.8 billion in funding year 2018 for public schools.
103. We next turn to the recurring costs for private schools and
for libraries. In a supplemental analysis, ESH estimates that it will
cost $446 million annually in pre-discount recurring costs for private
schools by funding year 2018. For libraries, ESH projects $298 million
annually in pre-discount recurring costs based on its pricing
assumptions for public schools. Adding these estimates to the public
school recurring projection, the sum of the projections for funding
year 2018 of total recurring costs rises to $3.60 billion. We increase
this funding year 2018 estimate by nine percent in order to project
costs over the five-year period for which we have set connectivity
targets (funding years 2015 to 2019). The resulting projection for
recurring pre-discount costs for public schools, private schools, and
libraries in funding year 2019 is $3.92 billion. However, as discussed
below, ESH also assumes that policy decisions can drive cost-efficient
purchasing which will reduce these pre-discount costs.
104. In addition to recurring costs for high-speed connectivity,
there will also be savings of over $3 billion in the next five years to
the E-rate program due to the phase down of voice services. Commenters
point out that additional savings are possible. The post-discount costs
to the E-rate fund are estimated to decrease from approximately $450
million in funding year 2015 to approximately $25 million in funding
year 2018. We acknowledge these costs to the program over the next four
funding years.
b. Non-Recurring Costs
105. We next review the estimates in the record of the non-
recurring costs, or capital expenditures, that are needed to connect
schools and libraries to high-speed broadband meeting the program's
connectivity targets over the next five years. The ESH/CoSN
Connectivity Model includes an estimate for new builds that are paid
for through recurring charges. By doing this, it recognizes that many
schools and libraries pay a monthly price that includes both the
capital deployment costs and the ongoing operational costs. At the same
time, the models provide projections of one-time costs that would be
sufficient to close the gap. While there may be applicants or service
providers that prefer to include the capital costs as a portion of the
annual price for the life of the contract, the ESH/CoSN Connectivity
Model provides a way to separate out these capital costs for the
schools located in the most expensive areas, where the higher cost of
buildout is more likely to require additional special construction
charges. The changes we adopt in Section II will provide greater
opportunities for applicants and service providers to take advantage of
special construction. The ESH/CoSN Connectivity Model demonstrates that
the cost to the program increases as a greater percentage of schools
get high-speed connections. To connect between 99.7 and 100 percent of
public schools with more than 100 students, the ESH/CoSN Connectivity
Model provides a range of non-recurring pre-discount costs of between
$600 and $810 million annually if divided evenly over the next five
funding years.
106. These projections for public schools costs are generally
consistent with the cost estimates provided by the SHLB Coalition for
both public and private schools. The SHLB Coalition Model provides a
low and a high estimate for non-recurring costs for fiber deployment to
both public and private schools that would range from $800 million to
$1.15 billion in pre-discount costs if divided evenly over the next
five funding years. It also projects approximately $135 million
annually over five funding years to connect unserved libraries across
the country to fiber. The record indicates that a reasonable estimate
of non-recurring pre-discount costs for both schools and libraries is
between $935 million and $1.29 billion annually over five years.
2. Driving Down Category One Prices Through Efficiencies
107. We also conclude that recent program changes will result in an
additional reduction in the cost to the Fund as applicants have more
opportunities to find cost-effective options. We strongly agree with
commenters that argue that programmatic change, further streamlining,
and continuing efforts to reduce waste, fraud, and abuse, such as
greater enforcement of the lowest corresponding price, is needed to
produce savings to the E-rate program. While the precise level of
savings from cost efficiencies is difficult to predict, there is record
support for a finding that they could achieve savings of as much as 10
to 25 percent on the cost of broadband. ESH provides an analysis of the
potential impact of several different policy scenarios that each could
result in significant pricing efficiencies, such as equalizing the
treatment of lit and dark fiber and increasing pricing transparency.
Similarly, increased planning and purchasing at the state level has
also been shown to result in greater bandwidth at lower per-megabit
prices, which is an added benefit of increasing state involvement in
the E-rate program by providing a bump in support for infrastructure
upgrades where states provide additional support. Because the record
demonstrates that our various changes will result in efficiencies
lowering program costs, we find it reasonable to assume savings of up
to 15 percent of projected demand for category one costs due to our
reforms.
C. Adjusting the E-Rate Cap To Provide Certainty of Sufficient
Available Funding To Achieve Program Goals
108. To ensure sufficient funding is available over the next five
years to meet our program goals and connectivity targets, we adjust the
E-rate cap to $3.9 billion plus annual inflationary changes. Raising
the annual E-rate funding cap to $3.9 billion will allow us to meet our
target of providing at least $1 billion in category two support
annually while fully funding category one demand, consistent with the
cost estimates modeled by commenters and partially offset by potential
efficiencies. There is wide support in the record for an increase in E-
rate funding to help schools and libraries meet the program's
connectivity targets, and we find that raising the cap to $3.9 billion
will ensure a specific, sufficient, and predictable level of funding
available as schools and libraries seek support for robust Wi-Fi
networks within their buildings and seek high-speed connections to
their buildings for years to come.
109. In addition to making it possible to close the high-speed
connectivity gap, raising the annual cap to $3.9 billion will provide
certainty about the availability of funding for those applicants
planning now to purchase high-speed broadband connectivity to schools
and libraries. It will also provide certainty about the availability of
funds for applicants seeking to take advantage of the changes to
category two funding by adjusting the cap in funding year 2015.
Commenters are in agreement that there is pent up demand for category
two services, and providing more than the $1 billion target level in
support for internal connections will
[[Page 5977]]
allow more applicants to close their Wi-Fi gaps sooner and more
efficiently. The availability of additional funds should allay concerns
that applicants below the highest discount bands will not have access
to category two funds in the near future. For these two reasons, we
also disagree with commenters that urge us to delay adjusting the cap
until all program changes have been implemented or more data is
available.
110. Raising the annual E-rate cap to $3.9 billion allows us to
provide certainty to the applicant community, allowing local decision-
makers to proceed at the pace that best serves their students and
patrons. In doing so, we do not expect that program demand will
immediately reach that funding level. Indeed, there is no way to
perfectly predict what precisely individual schools and libraries will
seek support for or when unserved schools will gather the resources to
pay the non-discounted portion of special construction charges. For
instance, we have already identified sufficient unspent funds to be
confident in funding for category two services in funding years 2015
and 2016, and it will take significant planning and time to take
advantage of the measures set out in Section II. However, the record is
clear that demand for and costs associated with high-speed broadband
services will continue to grow, and we find that raising the cap now to
$3.9 billion will provide needed room for future E-rate funding needs.
We balance this cap increase with our efforts to ensure fiscal prudence
and we direct USAC to collect program funds based only on actual
projected demand rather than collecting the full $3.9 billion without
regard to applicant needs. Providing USAC with this flexibility will
allow the Fund to accommodate fluctuations or changes in actual demand
in the coming years without over-collection of funds. In order to
facilitate this process and consistent with program practice, we amend
the rules to only allow applications to be filed within the filing
window. We disagree with commenters that argue that we should wait to
address long-term funding needs until the Federal State Joint Board
makes recommendations on contributions reform. Because demand for
category one support will not increase dramatically in the short-term,
we do not see a benefit in delaying this change when we have the
ability to provide certainty about future availability of funding to
schools and libraries making plans about connectivity for the next five
years.
111. Additionally, we recognize that end users ultimately bear the
cost of supporting universal service, through carrier charges. However,
we must balance our need for fiscal prudence with the demonstrated
needs of the E-rate program, for which we have a statutory mandate to
``establish rules . . . to enhance, to the extent technically feasible
and economically reasonable, access to advanced telecommunications and
information services.'' We adopted the program goal of ensuring
affordable access to high-speed broadband sufficient to support digital
learning in schools and robust connectivity to all libraries
recognizing the critical role the E-rate program plays in the lives of
students and communities. Having already taken steps to focus support
on high-speed broadband and set out measures to increase cost
efficiencies, this cap adjustment provides E-rate applicants with the
certainty needed to plan how to increase connectivity to schools and
libraries in the most cost-effective manner. Finally, setting a funding
level that has sufficient flexibility for these plans should also drive
long-term efficiencies in the program.
112. Finally, some commenters recommend that the Commission double
the cap, which is currently $2.4 billion, to meet recent demand. We
decline to raise the cap to $4.8 billion based on recent demand. Since
the funding year 2014 application window closed, we have modernized the
program to focus support on high-capacity broadband services by
eliminating support for legacy services, beginning with the phase out
of support for voice services and imposing budget discipline on
category two services. Raising the cap based on demand for a
differently structured program would not make sense. We find instead
that a program cap set using projected costs for the services the
program now supports and taking into account efficiencies through
recent policy changes is a more appropriate means to measure necessary
program size and ensure we exercise fiscal prudence.
IV. Establishing a Performance Management System at USAC To Advance the
Goals of the E-Rate Program (WC Docket 13-184)
113. In this section, we direct USAC to develop a robust
performance management system to advance the goals we adopted for the
E-rate program in the E-rate Modernization Order and to analyze, on an
ongoing-basis, the effectiveness of USAC's administration of the E-rate
program. Performance management is a process by which entities focus
their resources on the achievement of strategic goals and objectives,
including by the development of long-term strategic plans and by the
rigorous tracking of performance data. As the administrator of the E-
rate program, USAC's performance is integral to the success of the
program. Moreover, as a result of the transparency requirements we
adopted in the E-rate Modernization Order, the improved data collection
that will result from that order, and our direction to USAC to
modernize its information technology (IT) system, USAC will have access
to information that will be crucial in measuring our success toward
reaching the E-rate program goals and it is essential that they make
information available to schools, libraries, the Commission, and all
other stakeholders interested in updates about our progress towards
meeting those goals. Therefore, in developing and implementing its
performance management system, we direct USAC to work with staff from
OMD and the Bureau to formulate a detailed plan that includes both
immediate and long-term metrics directed at finding new ways to further
the E-rate program goals.
A. Components of the Performance Management System
114. We delegate to the Bureau and OMD oversight of the development
and implementation of USAC's performance management system. In addition
to directing USAC to develop a performance management system for its
administration of the E-rate program, we provide direction on a range
of components that USAC must include in the system. At the same time we
recognize that USAC's performance management system must be flexible
and adaptive, and we expect USAC, in consultation with staff of the
Bureau and of OMD, to continue to update its performance management
system, as appropriate.
115. Impact of E-rate modernization. In this Order, as we did in
the E-rate Modernization Order, we adopt a number of programmatic
changes aimed at reaching the goals we adopted for the E-rate program.
We have directed USAC, working with Commission staff, to implement
those changes. Recognizing that some of those changes will be more
successful than others, and that future Commissions will want to be
able to evaluate the success of those initiatives, we direct USAC to
incorporate in its performance management system an ongoing analysis of
the impact of those changes on reaching the goals that we adopted for
the E-rate program in the E-rate
[[Page 5978]]
Modernization Order, as well as USAC's success at implementing those
changes.
116. Impact of and further improvements to USAC's updated IT
system. USAC's performance management system should also include
ongoing evaluation of USAC's success in upgrading its IT system, and
moving towards all-electronic filings by E-rate stakeholders and all-
electronic notifications by USAC. As we directed in the July E-rate
Modernization Order, all applicants must file electronically their
applications for E-rate support for this coming funding year. As USAC
considers what more it can do to ease the administrative burden on
applicants through its upgraded IT system, it must develop a plan to
migrate the filing of all E-rate appeals and invoices to electronic
formats, and should make that possible by or before the start of
funding year 2017.
117. Simplifying calculation of discount rates. To further
streamline the application process, particularly for school districts
and library systems, we instruct USAC, as part of its performance
management system, to enable applicants to more easily manage the
discount calculation process in advance of the application filing
window. USAC should establish the appropriate timeframe for billed
entities to update their discount information in USAC's online system,
as well as a process for billed entities to certify to the accuracy of
such information prior to the opening of the application window. USAC's
system should then be able to assist applicants in determining their
discount rate based on such information, and pre-populate that
information based on the information provided by the billed entities.
At the same time, we remind applicants that they remain responsible for
ensuring that they are seeking the appropriate discount rate and they
are responsible for repayment in the event of any error in the
calculation of the discount rate whether caused by the applicant or by
USAC.
118. Online competitive bidding. In order to assist applicants in
maximizing the cost-effectiveness of spending for E-rate supported
services, as part of its performance management system, USAC should
explore the possibility of providing online tools to improve the
competitive bidding process. We agree with commenters who contend that
the competitive bidding process should encourage and facilitate
participation in the E-rate program by service providers. We therefore
direct USAC to work with OMD and the Bureau to determine the
feasibility and effectiveness of online tools to assist applicants with
the competitive bidding process, including online bid and review tools
to assist applicants in obtaining multiple bids and selecting the most
cost-effective services, and to reduce administrative costs and burdens
associated with competitive bidding. To expose applicants to more
purchasing options, USAC should also explore the provision of tools to
promote and facilitate increased involvement by service providers, and
to provide more visibility into options for purchasing the specific
products and services for which applicants are requesting proposals in
ways that are consistent with fair and open competitive bidding
requirements that are fundamental to the E-rate program.
119. Improving the administrative experience of program
participants. As part of its ongoing work to make the E-rate
application process and other E-rate processes faster, simpler, and
more efficient USAC should assess organizational options for placing
greater emphasis on improving the end-to-end administrative experience
of program participants, including applications, appeals, invoices, and
audits. For example, USAC should assess the value of designating senior
management directly responsible to the CEO to be responsible for
championing outreach and simplification strategies to benefit program
participants and to ensure that as much time, energy, and financial
resources as possible go to achieving program goals rather than to
cumbersome administrative processes. USAC should also solicit input
from program beneficiaries and other stakeholders and use that input in
evaluating, on an ongoing basis, its provision of customer support to
E-rate applicants. USAC should incorporate performance metrics related
to customer service into its overall performance management plan, and
work with Commission staff to identify improvement recommendations.
These recommendations should be considered at the highest levels of
management and given the appropriate consideration for implementation,
consistent with appropriate processes for coordination and approval by
the Commission of review procedures, and the success of improving the
customer service experience should be a key component of USAC's
performance management system.
120. Maximizing the cost-effectiveness of E-rate supported
purchases. As part of its performance management system, USAC should
analyze how its administration of the program can further the goal of
maximizing the cost-effectiveness of E-rate supported purchases. For
example, USAC should analyze its approach to cost-effectiveness
reviews, and find ways to share information with applicants and vendors
about its approach to such reviews, in order to encourage cost-
effective purchasing by applicants. We direct the Bureau and OMD to
oversee USAC's interpretation and application of cost effectiveness to
ensure alignment with the program goals we have set, with particular
emphasis on ensuring the cost effectiveness of the new methods of
supporting category one and category two services provided in the E-
rate Modernization Order as well as this Order.
121. USAC should also explore ways to assist schools and libraries
in receiving access to neutral, expert technical assistance. We agree
with those commenters who argue that technical assistance is critical
to building an efficient internal network. We have heard, however, from
many parties that such technical experience is often not available
within a school district or library system, especially those located in
rural areas. In situations where affordable technical assistance is not
available, USAC, as the expert administrator of the program, has an
important role to play given its focus on efficiently serving
applicants while verifying compliance with program rules. In keeping
with the recommendations of many commenters, we encourage USAC to work
with existing entities at the state and municipal level to develop best
practices and supporting technical information, and to consider
developing its own in-house advisors to provide this support. We direct
USAC to work with OMD and the Bureau to set the financial and
operational parameters for providing such assistance and to provide
guidance to applicants on the role and responsibilities of USAC when
offering such assistance. As part of that oversight, we also direct the
Bureau, working with OMD and USAC, to develop reference prices or other
guidelines for E-rate supported purchases that could provide guidance
both to applicants about prices that are likely to be considered cost-
effective and to USAC in prioritizing applications for additional
scrutiny for cost-effectiveness.
122. Data tracking and analysis. As part of its performance
management system, USAC should review its data tracking and reporting
capabilities to confirm that it tracks and reports the data necessary
to measure progress toward E-rate program goals. We direct USAC,
working with OMD and the Bureau, to create a comprehensive and
[[Page 5979]]
efficient data reporting structure, to develop IT tools that facilitate
analysis of all program data, and to increase public availability of
such data to increase transparency and enable beneficiaries and other
stakeholders both to assess progress by schools and libraries in
obtaining access to high-speed broadband connectivity and to obtain
detailed information from which to determine the cost effectiveness of
spending for E-rate products and services by beneficiaries.
123. Increased program efficiencies. USAC also should review its
pre- and post-commitment procedures and identify additional
opportunities for data analysis, improved compliance oversight, and
realization of increased efficiency and streamlining of processes for
the review of applications and the commitment and disbursement of
funds. This review should encompass both USAC's direct staff as well as
contract services such as those used in application in-take and
processing. We direct USAC to work with Commission staff to identify
areas in which a more common-sense and flexible administrative approach
would best advance program goals while still remaining consistent with
program rules set by the Commission.
124. Financial management. Finally, it is crucial that USAC include
financial management as a component of its performance management
system. The Commission has directed USAC to prepare financial
statements for the USF, including the E-rate program, consistent with
generally accepted accounting principles for federal agencies (Federal
GAAP) and to keep the USF in accordance with the United States Standard
General Ledger (USSGL). Working with OMD and other Commission staff,
USAC should review and update its processes for evaluating and
recommending the amounts that should be reserved to fund pending
appeals, pending applications, and undisbursed funding commitments. We
note that, for those appeals that may require additional commitments
and disbursements in the unlikely event that the amounts held in
reserve are not sufficient, the Commission has authorized USAC to use
funds budgeted for subsequent funding years to fund discounts for
successful appeals from prior funding years. For the pending
applications and undisbursed funding commitments, we similarly
authorize USAC to use funds budgeted for subsequent funding years to
fund discounts for those applications and undisbursed funding
commitments from prior funding years, in the unlikely event the amounts
held in reserve are not sufficient.
B. Expanding Commission Oversight of USAC's Administrative Performance
125. We also delegate authority to the Bureau and OMD to ensure
that beginning in funding year 2015 USAC conducts an annual performance
review of progress against program goals and creates a forward-looking
strategic plan for how USAC will expand and sustain performance
improvements. The Bureau and OMD should work together to assist USAC in
developing the measures that should be included in USAC's annual
performance review. USAC must report at a minimum on the following
components of the program's administration: Pending applications;
pending invoices, with specific information about those that were
delayed or rejected; USAC's strategy to reduce any backlog of
applications, invoices or other necessary USAC approvals for applicant
and service provider changes to requested funding; and an annual
analysis of the program integrity assurance (PIA) program and invoicing
procedures to determine if they are properly designed and calibrated to
efficiently process applications and invoices while protecting against
waste, fraud and abuse in the program.
126. Additionally, in the E-rate Modernization Order, we directed
USAC to collect additional connectivity data from applicants, noting
that this collection will provide useful and useable information to
USAC and to the Commission about what is working and what needs to be
improved. USAC should work with Commission staff to analyze and report
the results of this data collection in this performance analysis.
V. Filing Deadlines for Appeals
127. In the E-rate Modernization Order, we revised Sec. 54.719 of
our rules to require parties aggrieved by an action taken by a division
of USAC, including the Schools and Libraries Division, to first seek
review of that decision by USAC before filing an appeal with the
Commission. We also explained that because USAC cannot waive our rules,
parties seeking a waiver of our rules must seek relief directly from
the Commission or the Bureau. We now clarify that affected parties have
60 days from the issuance of the decision to file an appeal, either
with USAC in the case of requests for review, or the Commission or
Bureau in the case of requests for waiver. Additionally, parties that
file a request for review with USAC and receive an adverse outcome have
60 days from the issuance of that decision to file a request for review
with the Commission.
VI. Order on Reconsideration
A. Introduction
128. In this section, we address various petitions for
reconsideration of the E-rate Modernization Order and provide
clarification on several issues raised by the Verizon Petition. Our
rules allow any interested party to file a petition for
reconsideration, and provide that a petition for reconsideration which
relies on facts or arguments not previously presented to the Commission
shall be granted only where the facts or arguments relate to new events
or changed circumstances, were unknown and not readily ascertainable by
petitioners, or the Commission determines that the public interest
requires them to be reconsidered.
129. Having considered the petitions for reconsideration, and all
oppositions and replies filed in response to those petitions, we:
Grant in part the petitions for reconsideration filed by
SECA, the Utah Education Network, NTCA/Utah Rural Telecom Association,
and the West Virginia Department of Education (WVDE) seeking
reconsideration of the areas that we have designated as urban for
purposes of the E-rate program;
deny USTelecom's request that we reconsider our decision
to change the E-rate program's document retention period from five
years to 10 years;
deny requests by SECA, Verizon, and WVDE that we phase out
E-rate support for components of telephone service and voicemail on the
same schedule as voice service, and Verizon's request that we
reconsider our decision to eliminate funding for email offered as part
of an Internet access service;
deny requests by Verizon, SECA, and WVDE that we direct
USAC to make category two funding commitments that cover multiple-
years;
clarify our cost-effectiveness test for data plans and air
cards for mobile devices and our cost allocation rules for circuits
that carry both voice and data traffic as requested by Verizon; and
clarify for Verizon the E-rate Modernization Order's
category two funding availability and policy on applicant
prioritization. We also clarify for Verizon that the $150 budget over
five years applies to both managed and non-managed Wi-Fi.
B. Urban and Rural Designations
130. On reconsideration, we modify Sec. 54.505(b)(3) of our rules
so that
[[Page 5980]]
starting in funding year 2015 an individual school or library will be
designated as ``urban'' if located in an ``Urbanized Area'' or an
``Urban Cluster'' with a population equal to or greater than 25,000, as
determined by the most recent rural-urban classification by the U.S.
Census Bureau (Census Bureau). Any individual school or library not
designated as ``urban'' will be designated as ``rural.'' We make this
change to our rules on reconsideration because petitioners have
convincingly demonstrated that numerous schools and libraries located
in small towns and remote areas where it is more expensive to receive
E-rate funded services would be classified as urban and ineligible for
additional E-rate support provided to rural applicants under the urban
designation we adopted in the E-rate Modernization Order. In making
this change on reconsideration, we grant in part the petitions for
reconsideration filed by SECA, NTCA/Utah Rural Telecom Association,
WVDE, and the Utah Education Network. While we change how individual
sites are classified as urban or rural, we retain the current rule that
any school district or library system must have a majority of schools
or libraries in a rural area that meets our new urban/rural definition
to qualify for the additional rural discount.
131. In the E-rate Modernization Order, we made two changes to the
way applicants determine whether they are eligible for the rural
discount. We first adopted the Census Bureau definition of rural and
urban which classifies only communities with fewer than 2,500 people as
rural. Under the Census Bureau definition, the term ``urban'' includes
``urbanized areas,'' which are defined as the densely settled core of
census tracts or blocks with at least 50,000 people, and ``urban
clusters,'' with 2,500 to 50,000 people, along with adjacent
territories containing non-residential urban land uses as well as
territory with low population density included to link outlying densely
settled territory with the densely settled core. ``Rural'' encompasses
all population, housing, and territory not included within an urban
area. We found that the adoption of the Census Bureau definitions of
urban and rural was simpler for applicants than other alternatives and
the data more current than the previous outdated definition. Also in
the E-rate Modernization Order, we changed the criteria a school
district or library system must use to determine whether it qualifies
as rural for the E-rate program, concluding that school districts and
library systems would only be eligible for the rural discount if more
than 50 percent of individual schools or libraries within that district
or system are classified as rural.
132. As petitioners have explained, the population cutoff of 50,000
people combined with the requirement that a majority of all schools or
libraries that are part of a school district or library system be
classified as rural in order to qualify the school district or library
system for the additional rural discount rate leaves a substantial
number of school districts and library systems with schools or
libraries in sparsely populated areas ineligible for the additional
rural funding. For example, petitioners point out that as a result of
the definition adopted in the E-rate Modernization Order:
Schools in St. Mary's, West Virginia, a community with
1,860 people that is 20 miles from the nearest urbanized area, are part
of the Pleasants County School District that, under the new rural
definition, would be reclassified as urban.
School districts in Iowa would be newly designated as
urban, including the Bellevue Community School District, with an
enrollment of only 700 students and located in Bellevue, a town of
2,543 people.
Some of the most remote areas of the country situated in
Alaska, including the communities of Barrow, Bethel, Ketchikan,
Kotzebue, Nome and Sitka, have school districts that would be
reclassified as urban.
133. Three of the four petitions for reconsideration on this issue
initially requested that the definition of rural include all schools
and libraries in ``urban clusters.'' However, those petitioners
modified their requests and joined with the fourth petitioner, the Utah
Education Network, and a constituency of organizations representing
schools, libraries, E-rate coordinators, rural telecommunications
carriers, and other E-rate stakeholders, to recommend that the
Commission consider a population threshold of 25,000 or greater as
urban, and all other areas as rural for purposes of the E-rate program.
No parties in the record have opposed this recommendation.
134. We agree with petitioners and other stakeholders that this new
definition of rural is appropriate for ensuring support is targeted to
areas where E-rate supported services are more costly. Other federal
programs have used a similar population cutoff to designate whether an
area is rural or urban. For example, the Commission adopted 25,000 as
the population threshold when it revised its rural area definition for
the rural health care universal service support mechanism (Rural Health
Care Program) in 2004, essentially including as rural all census tracts
that do not contain any population concentrations greater than 25,000.
In adopting the Rural Health Care Program's rural definition, the
Commission noted that ``[w]hile choosing the threshold is not an exact
science, we believe urban areas above this size possess a critical mass
of population and facilities.'' In looking to other agencies, the U.S.
Department of Education's National Center for Education Statistics
(NCES) classifies ``small towns'' as any incorporated or Census-defined
place with fewer than 25,000 people. Some other federal programs have
established even broader definitions of rural than the one we adopt
today. For example, the 2014 Farm Bill included a provision related to
the U.S. Department of Agriculture Rural Housing Program that increased
the minimum rural population threshold for that program from 25,000 to
35,000.
135. Modifying our definition to treat areas with populations of
less than 25,000 as rural achieves the policy objectives established in
the E-rate Modernization Order by creating a rural definition based on
regularly adjusted U.S. Census data while remaining simple and easy to
administer. The Census Bureau already provides a spreadsheet of all
urbanized areas and urban clusters with the populations of the towns
and cities listed. To further eliminate any confusion regarding
implementation of this new definition, the Commission will direct USAC
to identify the areas that are rural for the purposes of the E-rate
program and post a tool on its Web site as soon as it is practically
possible. Going forward, we direct USAC to update the tool as necessary
to reflect the most recent decennial census data and nationwide
population estimates and update its system within 90 days of any
change. However, we once again remind applicants that they have an
obligation to ensure that they are seeking the correct discount rate.
136. In taking this action, we find that any additional burden on
the Fund is justified by the overwhelming evidence in the record
demonstrating that the rural definition adopted in the E-rate
Modernization Order excluded many applicants located in areas that are
more expensive to serve because of their remote geography. Further, we
believe that this change, by ensuring that many more schools and
libraries have the benefit of additional funding to compensate for
their rural geography, fully satisfies section 254(h)(1)(B) of the Act,
which requires that the E-rate
[[Page 5981]]
discount must be an amount that is ``appropriate and necessary to
ensure affordable access to and use of such services.''
137. Finally, we take this opportunity to eliminate an obsolete
reference to the definition of what constitutes a rural area for the
purposes of the E-rate program in Sec. 54.5 of our rules. The E-rate
definitions are properly found at 54.505(b) of our rules. However, the
``Terms and definitions'' section, found in Sec. 54.5 of our rules,
also defines ``rural area'' for the E-rate program. While we could also
amend the definition in 54.5 of our rules and make it parallel to the
definition in Sec. 54.505(b), we think that the better course is to
have the definition only in that section of our rules that is E-rate
specific. We therefore amend Sec. 54.5 to eliminate the reference to
the E-rate definition of rural.
C. Document Retention Period
138. We deny the USTelecom Petition seeking reconsideration of our
extension of the E-rate document retention period from five to 10
years. The arguments offered by USTelecom were either sufficiently
considered in this proceeding or do not raise new issues sufficient to
warrant reconsideration. In the E-rate Modernization Order we concluded
that the current five-year document retention requirement is not
adequate for purposes of litigation under the False Claims Act (FCA).
We also explained that a 10-year retention period will benefit program
integrity and that electronic storage capabilities will minimize the
administrative burden and cost for applicants and vendors. This
decision is consistent with our adoption of 10-year document retention
requirements for other universal service programs in the USF/ICC
Transformation Order and the Lifeline Reform Order, 77 FR 25609, May 1,
2012.
139. In its petition, USTelecom argues that document retention
requirements are not necessary for compliance with the FCA and that
existing case law ``provides no basis for the Commission to claim a
need for extended document retention periods in order to comply with
the FCA.'' We find it unnecessary to reach these arguments because our
decision to adopt a 10-year document retention period is justified on
several other independent grounds unrelated to the FCA. These non-FCA
grounds are sufficient in and of themselves to justify a 10-year
document retention period. In particular, we continue to find that:
Even outside the FCA context, a longer document retention
period will help the Commission guard against waste, fraud, and abuse
in the universal service program by ensuring that evidence will be
preserved.
Congress has imposed no statutory barrier to recovery
beyond five years. Indeed, the Debt Collection Improvement Act (DCIA),
31 U.S.C. 3701 et seq., generally directs agencies to ``try to collect
a claim of the [U.S.] Government for money or property arising out of
the activities of, or referred to, the agency.''
140. Other rationales (also unrelated to the FCA) reinforce our
belief that a 10-year document retention period will help ensure the
integrity of the E-rate program and will assist Commission
investigations into waste, fraud, and abuse, which may extend beyond a
five-year period. For instance, Government-wide regulations known as
the Federal Claims Collection Standards require agencies to
``aggressively collect all debts.'' Extending the retention period to
ten years will assist the agency in carrying out this objective.
Because the new document retention period is amply supported by these
reasons, we need not reach USTelecom's arguments regarding the FCA.
141. We also reject USTelecom's remaining arguments regarding the
new retention period. For instance, the fact that some other federal
programs may have shorter retention periods does not require a contrary
outcome, particularly since, as noted above, a 10-year document
retention rule aligns the E-rate program with the document retention
requirements of other universal service programs. Also unavailing is
USTelecom's argument that a 10-year document retention requirement is
unnecessary, will impose significant costs on applicants and vendors,
and is not supported by the record. We previously considered and
rejected these arguments in this proceeding. USTelecom cites several
commenters opposed to a longer document retention period. However,
those commenters either failed to provide any substantive support for
their opposition to a 10-year requirement or offered general arguments
about school staff turnover or shorter state and federal retention
requirements without providing persuasive support as to why a 10-year
requirement for the E-rate program would be overly burdensome. In the
E-rate Modernization Order, we acknowledged stakeholder concerns about
the potential costs and administrative burden of a 10-year retention
requirement, but concluded that those costs and burdens can be
mitigated with electronic storage capabilities and concluded that any
such costs would be outweighed by the benefits to the integrity of the
program. We reaffirm that conclusion here.
D. Telephone Service Components, Voicemail, and Email
142. We deny those portions of the Verizon and WVDE petitions
requesting us to (i) reconsider our treatment of telephone service
components, including directory assistance charges, text messaging,
custom calling services, direct inward dialing (DID), 900/976 call
blocking, and inside wire maintenance, as part of voice services; and
(ii) phase out support for those services on the same five-year
schedule as voice services rather than eliminating support beginning in
funding year 2015. We therefore also deny SECA's request that we remove
DID numbers from the list of eliminated telephone components and
instead phase out support for DID numbers on the same schedule as voice
services. We also deny Verizon's requests that voicemail be phased out
on the same schedule as voice service and that the E-rate program
support email offered as part of an Internet access service.
143. In the E-rate Modernization Order we initiated a five-year
phase down of E-rate support for voice services and eliminated support
for other legacy and non-broadband services effective for funding year
2015. We explained that reductions in funding for voice services and
eliminating funding for telephone components and non-broadband services
was necessary in order to focus E-rate program spending on the high-
speed broadband needed by schools to enable digital learning and by
libraries to meet patrons' broadband needs.
144. Verizon and WVDE argue that cost allocating telephone service
components and voicemail from a typical applicant phone bill will place
a substantial burden on applicants, service providers, and USAC
reviewers that is not justified by the corresponding savings to the E-
rate program. SECA argues that DID numbers, unlike the other telephone
service components no longer eligible for E-rate support, are an
essential feature of voice service and should therefore be placed on
the same phase down schedule as voice services.
145. The arguments and facts presented in the Verizon, WVDE, and
SECA petitions were previously considered in this rulemaking and do not
merit reconsideration of our conclusions. In the E-rate Modernization
NPRM, we indicated our intention to refocus E-rate funding on high-
speed broadband services and, as part of that effort, proposed to
eliminate E-rate support for telephone service
[[Page 5982]]
components, voicemail, and email. With respect to the components of
telephone service, in the E-rate Modernization Order, we acknowledged
that eliminating support for these services would require cost
allocation but concluded that it would not be overly burdensome for
applicants to seek funding for only the voice service component of
their telephone service. We concluded that the benefits of streamlining
voice service support by removing these services outweighed the
additional burden on applicants of cost allocation for the next few
funding years. We also noted that commenters that recommended a longer
phase down period for voice services did not recommend a commensurate
phase down for telephone service components or argue that those
services required a phase down. Similarly, eliminating support for
email services will require cost allocation for email offered as part
of an Internet access service but we believe that the benefits of
focusing funding on high-speed broadband justify the minimal cost
allocation burden on applicants. Consistent with the third goal that we
adopted in the E-rate Modernization Order, making E-rate processes
fast, simple, and efficient, and in order to reduce the administrative
burden on applicants, we expect that USAC will, working with the
Bureau, establish guidelines for how applicants can proportion the cost
of services on telephone bills in order to cost-allocate ineligible
telephone service components and voicemail.
E. Conditional or Multi-Year Commitments
146. We deny the petitions filed by SECA, Verizon, and WVDE to the
extent they request that the Commission reconsider the approach to
category two funding adopted in the E-rate Modernization Order. SECA,
Verizon, and WVDE do not raise new facts or arguments that warrant
Commission review of the E-rate program's prohibition on multi-year
funding commitments.
147. In the E-rate Modernization Order, we created a mechanism for
focusing funding on internal connections, including Wi-Fi, to allow
schools and libraries to have affordable access to high-speed broadband
connections needed for digital learning. To provide broader and more
equitable support for category two services, the E-rate Modernization
Order created five-year budgets for applicants that seek and receive
category two funding in funding years 2015 and 2016. In the Second E-
rate Modernization Order, we extend the five-year applicant budgets for
category two services for three additional years. While we allow
category two applicants to enter into multi-year agreements, we
declined to make multi-year commitments available.
148. We deny the Verizon Petition with respect to its proposal to
allow multi-year commitments for managed Wi-Fi services as a way to
remove uncertainty about whether funding will be available in the later
years of a five-year category two budget cycle. In the E-rate
Modernization Order we considered and rejected arguments in favor of
multi-year commitments in the E-rate program. As we explained in that
order, obligating funds in advance of their availability would be
detrimental to the administration of the program. We also explained
that the multi-year application process we created in that order should
allow applicants to achieve many of the efficiencies of a multi-year
funding commitment. Furthermore, petitioners' concerns about the
uncertainty of funding for category two services should be alleviated
by the actions we have taken in the Second E-rate Modernization Order
to raise the cap, and to extend the category two budget approach to
cover five funding years. Therefore, we find it is in the best interest
of the Fund to continue to have the Administrator obligate funds one
funding year at a time.
149. We also deny SECA and WVDE's proposal that we provide
conditional funding commitments to all valid applications for category
two funding. Under this proposal, if funding is unavailable in the year
in which it is sought, rather than being denied support, an applicant
would receive a commitment of future support for those services. We
find that this approach is not necessary because uncertainty about
funding for category two services should be alleviated by the actions
we have taken to raise the annual E-rate cap and extend the category
two budget framework for the next three years. Further, if there comes
a time that we are unable to meet the demand for category two support,
instead of providing predictability for applicants, SECA's and WVDE's
proposals would lead to greater uncertainty, and administrative
complexity because applicants would not know when they would receive
reimbursement or how much reimbursement they would entitled to receive.
Under WVDE's proposal, applicants would use the discount rate in effect
at the time the funds become available, meaning applicants would have
to account for changes in student demographics and the urban/rural
classification that affect the discount level. Thus, it would be very
difficult for applicants to predict the level of expected reimbursement
and could lead to budget shortfalls for applicants expecting a larger
disbursement from the Fund.
F. Clarifications
150. Cost-Effectiveness for Wireless Data Plans and Air Cards. In
response to Verizon's request for clarification, we offer additional
guidance on the proper cost-effectiveness test for data plans and air
cards for mobile devices. When purchasing any E-rate eligible service,
applicants are required to carefully consider all bids and select the
most cost-effective service offering, and must consider price to be the
primary factor. In the E-rate Modernization Order, we took the
opportunity to discuss the limited circumstances under which we would
find data plans or air cards for mobile devices to be cost-effective.
We explained that it is generally more cost-effective for schools and
libraries to purchase a fixed broadband connection to the building and
a WLAN capable of providing connectivity to multiple devices throughout
the building. However, we recognized that there are circumstances, such
as library bookmobiles or very small schools and libraries with high
connectivity costs, where individual data plans or air cards for mobile
devices may be the most cost-effective solution. We then provided an
example of how applicants could demonstrate the cost-effectiveness of
data plans or air cards for mobile devices through comparison of the
costs for a WLAN deployment.
151. Verizon requests clarification that applicants should compare
the cost of data plans or air cards for mobile devices to the cost of
all components necessary to deliver connectivity to the end user
device. Verizon also requests clarification as to whether applicants
may take into account the potential limited availability of category
two funding when evaluating the cost effectiveness of individual data
plans and air cards for mobile devices.
152. We agree with the points raised by Verizon's first request and
clarify that applicants that seek funding for data plans or air cards
for mobile devices should compare the cost of all components necessary
to deliver connectivity to the end user device, including the costs of
Internet access and connectivity to the school or library, to the total
cost of data plans or air cards when selecting the most cost-effective
service option. Schools with existing fixed broadband connections
should limit this comparison to the
[[Page 5983]]
recurring cost of their current broadband connection plus the added
cost of any upgrades to their broadband connections and any additional
or updated internal connections needed to deploy a sufficiently robust
WLAN with all capital investments amortized over their expected
lifespan. We also caution applicants that seeking support for data
plans or air cards for mobile devices for use in a school or library
with an existing fixed broadband connection and WLAN implicates our
prohibition on requests for duplicative services. In circumstances
where an applicant successfully demonstrates that mobile data plans or
air cards are the most cost-effective offering, such as a bookmobile or
very small school or library facility, the impracticality or unusually
high cost of purchasing a fixed broadband connection to the location
should be a factor in the applicant's cost-effectiveness analysis.
153. We also clarify that an applicant may not consider whether it
is likely to receive category two E-rate support when analyzing the
cost-effectiveness of data plans or air cards for mobile devices. While
our rules allow applicants to consider relevant factors other than cost
as part of the cost-effectiveness determination, price must be the
primary factor in an applicant's cost-effectiveness determination
regardless of whether the applicant anticipates receiving category two
E-rate support. Indeed our rules require that entities use the actual,
i.e. pre-discount, cost of the service offered as a baseline for
comparison, not the cost after the E-rate discount is applied.
154. Circuit Capacity Dedicated to Voice Services. Verizon also
requests that we clarify how the reduced discount rates for voice
services apply to costs incurred for circuit capacity dedicated to
providing voice services. We clarify that applicants must cost allocate
charges attributable to voice services from the cost of all circuits
used for dedicated voice and data services and that those voice service
charges will be subject to the five-year voice service phase down. In
the E-rate Modernization Order, we specified that the five-year phase
down of support for voice services will apply to all applicants and all
costs incurred for the provision of telephone services and circuit
capacity dedicated to providing voice services. Verizon seeks general
clarification of the term ``circuit capacity dedicated to providing
voice services.'' Verizon also requests specific clarification of the
proper cost allocation method for voice services on three types of
circuits: (1) A circuit leased for a district-operated private voice
network, (2) a leased WAN circuit that carries both voice and broadband
traffic, and (3) a circuit that carries both voice and broadband
services. As discussed below, Commission rules require applicants to
cost allocate charges attributable to voice services from the circuit
cost in all circumstances described by Verizon.
155. Under the Commission's rules, if a product or service contains
both eligible and ineligible components, costs should be allocated to
the extent that a clear delineation can be made between the eligible
and ineligible components. The clear delineation must have a tangible
basis and the price for the eligible portion must be the most cost-
effective means of receiving the eligible service. We understand that
application of our cost allocation rules to circuits used for both
voice and data services may require some additional effort from
applicants and service providers; however, the requirement does not
impose a substantial burden and provides an important benefit to the
program.
156. We provide the following clarifications regarding application
of our cost allocation rules to circuits carrying both voice and data
services.
For a bundled voice and data service provided over a
single circuit, (e.g., a cable voice/data bundle) the voice service
portion must be cost allocated and subject to the voice services phase
down. As with telephone service components, one proper method for cost
allocating the voice service portion of a bundled voice/data circuit
may be for the applicant to seek an appropriate cost allocation from
its service provider.
For circuits dedicated solely to voice service, including
PRIs, SIP trunks, and VoIP provider circuits, the full cost of the
dedicated circuit is subject to the voice services phase down.
Verizon's description of a circuit leased for a district-operated
private voice network would be considered a circuit dedicated to voice
service.
For services that dedicate a portion of a data circuit to
voice service, (e.g., voice channels on a T-1 circuit or dedicated
bandwidth for VoIP traffic using a virtual local area network) the cost
of the dedicated portion of the circuit must be cost allocated and
subject to the voice services phase down.
For voice applications that run over a data circuit but do
not require any dedicated circuit capacity, the applicant is not
required to cost allocate any portion of the data circuit cost for
voice services.
157. Funding for Budgets. Verizon asks the Commission to clarify
that it expects full funding to be available up to the budgeted amount
in each of the five years of an applicant's category two budget and
that priority be given in later years of a budget cycle to applicants
that receive category two support in the first funding years 2015 and
2016. Based on historic demand and the changes we made to the E-rate
program in both E-rate Modernization Orders, we expect funding will be
sufficient to meet demand but we cannot guarantee that category two
funding will be available to any particular applicant in any particular
year.
VII. Delegation To Revise Rules
158. Given the complexities associated with modernizing the E-rate
program, modifying our rules, and the other programmatic changes we
adopt in this Report and Order, we delegate authority to the Bureau to
make any further rule revisions as necessary to ensure the changes to
the program adopted in this Report and Order are reflected in our
rules. This includes correcting any conflicts between new and/or
revised rules and existing rules as well as addressing any omissions or
oversights. If any such rule changes are warranted the Bureau shall be
responsible for such change. We note that any entity that disagrees
with a rule change made on delegated authority will have the
opportunity to file an Application for Review by the full Commission.
We expect the Bureau and USAC to monitor the program for waste, fraud
and abuse and we delegate authority to the Bureau and OMD to specify
additional administrative requirements in connection with the program
changes we adopt today and authority to provide guidance to USAC in its
implementation of these changes. The purpose of this delegation is to
protect against potential waste, fraud, and abuse in the E-rate
program.
VIII. Procedural Matters
A. Final Regulatory Flexibility Analysis
159. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Federal Communications Commission (Commission)
included Initial Regulatory Flexibility Analyses (IRFAs) of the
possible significant economic impact on a substantial number of small
entities by the policies and rules proposed in the E-rate Modernization
NPRM and E-rate Modernization FNPRM in WC Docket No. 13-184. The
Commission sought written public comment on the proposals in the E-rate
Modernization
[[Page 5984]]
NPRM and E-rate Modernization FNPRM, including comment on the IRFAs.
This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
B. Need for, and Objectives of, the Proposed Rule
160. The Commission is required by section 254 of the
Communications Act of 1934, as amended, to promulgate rules to
implement the universal service provisions of section 254. On May 8,
1997, the Commission adopted rules to reform its system of universal
service support mechanisms so that universal service is preserved and
advanced as markets move toward competition. Specifically, under the
schools and libraries universal service support mechanism, also known
as the E-rate program, eligible schools, libraries, and consortia that
include eligible schools and libraries may receive discounts for
eligible telecommunications services, Internet access, and internal
connections.
161. In July 2013, the Commission issued a Notice of Proposed
Rulemaking seeking public comment on proposals to update the E-rate
program to focus on 21st Century broadband needs of schools and
libraries. Later, in February 2014, the Wireline Competition Bureau
(Bureau) issued a Public Notice seeking focused comment on issues
raised in the E-rate Modernization NPRM. Then, in July 2014, we adopted
a number of proposals in the E-rate Modernization NPRM and issued a
Further Notice of Proposed Rulemaking seeking public comment on
additional proposals to update the E-rate program. In this Report and
Order, we adopt a number of the proposals put forward in the E-rate
Modernization NPRM and E-rate Modernization FNPRM.
162. This Report and Order continues the Commission's efforts to
promote broadband access for schools and libraries and support the
goals that we adopted in the E-rate Modernization Order. In it, we
lower the barrier to obtaining high-speed connections and increase the
E-rate funding cap to meet the needs of the program. To lower barriers
to obtaining high-speed connections, we (1) provide greater flexibility
for applicants with respect to payment options for large non-recurring
capital costs for high-speed broadband; (2) equalize the treatment of
lit and dark fiber to offer applicants an additional cost-effective
option for deploying high-speed broadband; (3) allow self-construction
of high-speed broadband facilities by schools and libraries when self-
construction is the most cost-effective option; (4) provide up to an
additional 10 percent in category one funding to match state funding
for special construction charges for last-mile facilities to support
high-speed broadband; and (5) obligating recipients of high-cost
Universal Service Fund support to offer high-speed broadband to schools
and libraries located in the geographic area where the carrier receives
high-cost support at rates reasonably comparable to similar services in
urban areas. To meet the needs of the program, we raise the E-rate
funding cap to $3.9 billion.
C. Summary of Significant Issues Raised by Public Comments to the IRFA
163. No comments specifically addressed the IRFA.
D. Description and Estimate of the Number of Small Entities to Which
the Proposed Rules May Apply
164. The RFA directs agencies to provide a description of and,
where feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. The RFA generally defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small business concern'' under the Small Business
Act. A small business concern is one that: (1) Is independently owned
and operated; (2) is not dominant in its field of operation; and (3)
satisfies any additional criteria established by the Small Business
Administration (SBA). Nationwide, there are a total of approximately
28.2 million small businesses, according to the SBA. A ``small
organization'' is generally ``any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.''
165. Nationwide, as of 2002, there were approximately 1.6 million
small organizations. The term ``small governmental jurisdiction'' is
defined generally as ``governments of cities, towns, townships,
villages, school districts, or special districts, with a population of
less than fifty thousand.'' Census Bureau data for 2002 indicate that
there were 87,525 local governmental jurisdictions in the United
States. We estimate that, of this total, 84,377 entities were ``small
governmental jurisdictions.'' Thus, we estimate that most governmental
jurisdictions are small.
166. Small entities potentially affected by the proposals herein
include eligible schools and libraries and the eligible service
providers offering them discounted services.
167. Schools and Libraries. As noted, ``small entity'' includes
non-profit and small government entities. Under the schools and
libraries universal service support mechanism, which provides support
for elementary and secondary schools and libraries, an elementary
school is generally ``a non-profit institutional day or residential
school that provides elementary education, as determined under state
law.'' A secondary school is generally defined as ``a non-profit
institutional day or residential school that provides secondary
education, as determined under state law,'' and not offering education
beyond grade 12. For-profit schools and libraries, and schools and
libraries with endowments in excess of $50,000,000, are not eligible to
receive discounts under the program, nor are libraries whose budgets
are not completely separate from any schools. Certain other statutory
definitions apply as well. The SBA has defined elementary and secondary
schools and libraries having $6 million or less in annual receipts as
small entities. In funding year 2007, approximately 105,500 schools and
10,950 libraries received funding under the schools and libraries
universal service mechanism. Although we are unable to estimate with
precision the number of these entities that would qualify as small
entities under SBA's size standard, we estimate that fewer than 105,500
schools and 10,950 libraries might be affected annually by our action,
under current operation of the program.
168. Telecommunications Service Providers. First, neither the
Commission nor the SBA has developed a size standard for small
incumbent local exchange services. The closest size standard under SBA
rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 1,307 incumbent carriers reported that
they were engaged in the provision of local exchange services. Of these
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and
301 have more than 1,500 employees. Thus, under this category and
associated small business size standard, we estimate that the majority
of entities are small. We have included small incumbent local exchange
carriers in this RFA analysis. A ``small business'' under the RFA is
one that, inter alia, meets the pertinent small business size standard
(e.g., a telephone communications business having 1,500 or fewer
employees), and ``is not dominant in its field of operation.'' The
SBA's Office of
[[Page 5985]]
Advocacy contends that, for RFA purposes, small incumbent local
exchange carriers are not dominant in their field of operation because
any such dominance is not ``national'' in scope. We have therefore
included small incumbent carriers in this RFA analysis, although we
emphasize that this RFA action has no effect on the Commission's
analyses and determinations in other, non-RFA contexts.
169. Second, neither the Commission nor the SBA has developed a
definition of small entities specifically applicable to providers of
interexchange services (IXCs). The closest applicable definition under
the SBA rules is for wired telecommunications carriers. This provides
that a wired telecommunications carrier is a small entity if it employs
no more than 1,500 employees. According to the Commission's 2010 Trends
Report, 359 companies reported that they were engaged in the provision
of interexchange services. Of these 300 IXCs, an estimated 317 have
1,500 or few employees and 42 have more than 1,500 employees.
Consequently, the Commission estimates that most providers of
interexchange services are small businesses.
170. Third, neither the Commission nor the SBA has developed a
definition of small entities specifically applicable to competitive
access services providers (CAPs). The closest applicable definition
under the SBA rules is for wired telecommunications carriers. This
provides that a wired telecommunications carrier is a small entity if
it employs no more than 1,500 employees. According to the 2010 Trends
Report, 1,442 CAPs and competitive local exchange carriers (competitive
LECs) reported that they were engaged in the provision of competitive
local exchange services. Of these 1,442 CAPs and competitive LECs, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than
1,500 employees. Consequently, the Commission estimates that most
providers of competitive exchange services are small businesses.
171. Wireless Telecommunications Carriers (except Satellite). Since
2007, the Census Bureau has placed wireless firms within this new,
broad, economic census category. Prior to that time, such firms were
within the now-superseded categories of ``Paging'' and ``Cellular and
Other Wireless Telecommunications.'' Under the present and prior
categories, the SBA has deemed a wireless business to be small if it
has 1,500 or fewer employees. Because Census Bureau data are not yet
available for the new category, we will estimate small business
prevalence using the prior categories and associated data. For the
category of Paging, data for 2002 show that there were 807 firms that
operated for the entire year. Of this total, 804 firms had employment
of 999 or fewer employees, and three firms had employment of 1,000
employees or more. For the category of Cellular and Other Wireless
Telecommunications, data for 2002 show that there were 1,397 firms that
operated for the entire year. Of this total, 1,378 firms had employment
of 999 or fewer employees, and 19 firms had employment of 1,000
employees or more. Thus, we estimate that the majority of wireless
firms are small.
172. Wireless telephony includes cellular, personal communications
services, and specialized mobile radio telephony carriers. As noted,
the SBA has developed a small business size standard for Wireless
Telecommunications Carriers (except Satellite). Under the SBA small
business size standard, a business is small if it has 1,500 or fewer
employees. According to the 2010 Trends Report, 413 carriers reported
that they were engaged in wireless telephony. Of these, an estimated
261 have 1,500 or fewer employees and 152 have more than 1,500
employees. We have estimated that 261 of these are small under the SBA
small business size standard.
173. Common Carrier Paging. As noted, since 2007 the Census Bureau
has placed paging providers within the broad economic census category
of Wireless Telecommunications Carriers (except Satellite). Prior to
that time, such firms were within the now-superseded category of
``Paging.'' Under the present and prior categories, the SBA has deemed
a wireless business to be small if it has 1,500 or fewer employees.
Because Census Bureau data are not yet available for the new category,
we will estimate small business prevalence using the prior category and
associated data. The data for 2002 show that there were 807 firms that
operated for the entire year. Of this total, 804 firms had employment
of 999 or fewer employees, and three firms had employment of 1,000
employees or more. Thus, we estimate that the majority of paging firms
are small.
174. In addition, in the Paging Second Report and Order, 64 FR
33762, June 24, 1999, the Commission adopted a size standard for
``small businesses'' for purposes of determining their eligibility for
special provisions such as bidding credits and installment payments. A
small business is an entity that, together with its affiliates and
controlling principals, has average gross revenues not exceeding $15
million for the preceding three years. The SBA has approved this
definition. An initial auction of Metropolitan Economic Area (``MEA'')
licenses was conducted in the year 2000. Of the 2,499 licenses
auctioned, 985 were sold. Fifty-seven companies claiming small business
status won 440 licenses. A subsequent auction of MEA and Economic Area
(``EA'') licenses was held in the year 2001. Of the 15,514 licenses
auctioned, 5,323 were sold. One hundred thirty-two companies claiming
small business status purchased 3,724 licenses. A third auction,
consisting of 8,874 licenses in each of 175 EAs and 1,328 licenses in
all but three of the 51 MEAs, was held in 2003. Seventy-seven bidders
claiming small or very small business status won 2,093 licenses.
175. Currently, there are approximately 74,000 Common Carrier
Paging licenses. According to the most recent Trends in Telephone
Service, 291 carriers reported that they were engaged in the provision
of ``paging and messaging'' services. Of these, an estimated 289 have
1,500 or fewer employees and two have more than 1,500 employees. We
estimate that the majority of common carrier paging providers would
qualify as small entities under the SBA definition.
176. Internet Service Providers. The 2007 Economic Census places
these firms, whose services might include voice over Internet protocol
(VoIP), in either of two categories, depending on whether the service
is provided over the provider's own telecommunications facilities
(e.g., cable and DSL ISPs), or over client-supplied telecommunications
connections (e.g., dial-up ISPs). The former are within the category of
Wired Telecommunications Carriers, which has an SBA small business size
standard of 1,500 or fewer employees. The latter are within the
category of All Other Telecommunications, which has a size standard of
annual receipts of $25 million or less. The most current Census Bureau
data for all such firms, however, are the 2002 data for the previous
census category called Internet Service Providers. That category had a
small business size standard of $21 million or less in annual receipts,
which was revised in late 2005 to $23 million. The 2002 data show that
there were 2,529 such firms that operated for the entire year. Of
those, 2,437 firms had annual receipts of under $10 million, and an
additional 47 firms had receipts of between $10 million and
$24,999,999. Consequently, we estimate that the majority of ISP firms
are small entities.
[[Page 5986]]
177. Vendors of Internal Connections: Telephone Apparatus
Manufacturing. The Census Bureau defines this category as follows:
``This industry comprises establishments primarily engaged in
manufacturing wire telephone and data communications equipment. These
products may be standalone or board-level components of a larger
system. Examples of products made by these establishments are central
office switching equipment, cordless telephones (except cellular), PBX
equipment, telephones, telephone answering machines, LAN modems, multi-
user modems, and other data communications equipment, such as bridges,
routers, and gateways.'' The SBA has developed a small business size
standard for Telephone Apparatus Manufacturing, which is: all such
firms having 1,000 or fewer employees. According to Census Bureau data
for 2002, there were a total of 518 establishments in this category
that operated for the entire year. Of this total, 511 had employment of
under 1,000, and an additional seven had employment of 1,000 to 2,499.
Thus, under this size standard, the majority of firms can be considered
small.
178. Vendors of Internal Connections: Radio and Television
Broadcasting and Wireless Communications Equipment Manufacturing. The
Census Bureau defines this category as follows: ``This industry
comprises establishments primarily engaged in manufacturing radio and
television broadcast and wireless communications equipment. Examples of
products made by these establishments are: transmitting and receiving
antennas, cable television equipment, GPS equipment, pagers, cellular
phones, mobile communications equipment, and radio and television
studio and broadcasting equipment.'' The SBA has developed a small
business size standard for firms in this category, which is: all such
firms having 750 or fewer employees. According to Census Bureau data
for 2002, there were a total of 1,041 establishments in this category
that operated for the entire year. Of this total, 1,010 had employment
of under 500, and an additional 13 had employment of 500 to 999. Thus,
under this size standard, the majority of firms can be considered
small.
179. Vendors of Internal Connections: Other Communications
Equipment Manufacturing. The Census Bureau defines this category as
follows: ``This industry comprises establishments primarily engaged in
manufacturing communications equipment (except telephone apparatus, and
radio and television broadcast, and wireless communications
equipment).'' The SBA has developed a small business size standard for
Other Communications Equipment Manufacturing, which is having 750 or
fewer employees. According to Census Bureau data for 2002, there were a
total of 503 establishments in this category that operated for the
entire year. Of this total, 493 had employment of under 500, and an
additional 7 had employment of 500 to 999. Thus, under this size
standard, the majority of firms can be considered small.
E. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
180. Some of our rule changes will result in additional
recordkeeping requirements for small entities. For all of those rule
changes, we have determined that the benefit the rule change will bring
for the program outweighs the burden of the increased recordkeeping
requirement.
1. Increase in Projected Reporting, Recordkeeping and Other Compliance
Requirements
181. Compliance burdens. All of the rules we implement impose some
burden on small entities by requiring them to become familiar with the
new rule to comply with it. For many new rules, the burden of becoming
familiar with the new rule in order to comply with it is the only
burden the rule imposes.
182. Extending pre-discount budgets for category two services for
three additional years. This rule change will increase recordkeeping
burdens by requiring applicants to calculate their budgets and keep
track of the amount that they have spent in a five-year period. The
benefit of making category two funding available to applicants
outweighs this burden.
183. Permitting self-construction option. Our permitting applicants
to receive E-rate funding for self-construction networks creates the
minor additional burden of requiring applicants to seek bids for both
self-construction and services-only. The cost savings applicants and
the Fund will realize from this rule change justifies these burdens.
184. Additional discounts when states match funds for fiber
construction. Providing additional discounts when states match funds
for fiber construction will impose the additional minimal burden of
requiring applicants to produce documentation verifying states' matched
funds. The additional USF funding for fiber construction that this rule
change makes available to applicants outweighs this burden.
185. High-cost providers. The requirement that recipients of high-
cost support offer broadband service to eligible schools and libraries
at rates reasonably comparable to rates charged in urban areas will
increase recordkeeping burdens for some service providers and some E-
rate applicants. Specifically, E-rate service providers who receive
high-cost support will have the additional burden of bidding for, and
possibly providing, services to schools and libraries in areas they
receive high-cost support. Schools and libraries in those areas will
have the additional burden of evaluating bids from these service
providers.
2. Decrease in Projected Reporting, Recordkeeping and Other Compliance
Requirements
186. Suspending USAC's multi-year amortization policy for non-
recurring construction costs. Our suspension of USAC's multi-year
amortization policy for non-recurring construction costs will decrease
recordkeeping requirements by eliminating the burdens associated with
amortization for the duration of the suspension.
3. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
187. The RFA requires an agency to describe any significant,
specifically small business, alternatives that it has considered in
reaching its proposed approach, which may include the following four
alternatives (among others): ``(1) The establishment of differing
compliance or reporting requirements or timetables that take into
account the resources available to small entities; (2) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the rule for such small entities; (3) the
use of performance rather than design standards; and (4) an exemption
from coverage of the rule, or any part thereof, for such small
entities.''
188. This rulemaking could impose minimal additional burdens on
small entities. We considered alternatives to the rulemaking changes
that increase projected reporting, recordkeeping and other compliance
requirements for small entities.
189. Report to Congress.
190. The Commission will send a copy of this Report and Order,
including this FRFA, in a report to be sent to Congress pursuant to the
SBREFA. In addition, the Commission will send a copy of the Report and
Order, including
[[Page 5987]]
the FRFA, to the Chief Counsel for Advocacy of the SBA. A copy of the
Report and Order and the FRFA (or summaries thereof) will also be
published in the Federal Register.
F. Paperwork Reduction Act Analysis
191. This Report and Order and Order or Reconsideration contains
new information collection requirements subject to the Paperwork
Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to
the Office of Management and Budget (OMB) for review under section
3507(d) of the PRA. OMB, the general public, and other Federal agencies
are invited to comment on the revised information collection
requirements contained in this proceeding. In addition, we note that
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law
107-198, the Commission previously sought specific comment on how it
might further reduce the information collection burden on small
business concerns with fewer than 25 employees.
G. Congressional Review Act
192. The Commission will include a copy of this Report and Order
and Order on Reconsideration in a report to be sent to Congress and the
Government Accountability Office pursuant to the Congressional Review
Act.
IX. Ordering Clauses
193. Accordingly, it is Ordered, that pursuant to the authority
contained in sections 1 through 4, 201 through 205, 254, 303(r), 403,
and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 151-
154, 201-205, 254, 303(r), 403, and 405, and section 706 of the
Telecommunications Act of 1996, 47 U.S.C. 1302, this Report and Order
and Order on Reconsideration is Adopted effective March 6, 2015, except
to the extent expressly addressed below.
194. It is further ordered, that pursuant to the authority
contained in sections 1 through 4, 201 through 205, 254, 303(r), 403,
and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 151-
154, 201-205, 254, 303(r), 403, and 405 and section 706 of the
Telecommunications Act of 1996, 47 U.S.C. 1302, part 54 of the
Commission's rules, 47 CFR part 54, is Amended as set forth below, and
such rule amendments shall be effective March 6, 2015, except for
amendments in Sec. Sec. 54.313(e)(2) and (f)(1), 54.503(c)(1) and
54.504(a)(1)(iii), which are subject to the PRA and will become
effective upon announcement in the Federal Register of OMB approval of
the subject information collection requirements and of the effective
date; and except for amendments in Sec. Sec. 54.308(b), 54.309(b),
54.505(b)(3) and (b)(3)(i), and 54.507(a) and (c), which shall become
effective on July 1, 2015; and amendments in Sec. 54.518 and
paragraphs (b), (c) and (f) of Sec. 54.505, which shall become
effective on July 1, 2016.
195. It is further ordered that, pursuant to the authority
contained in section 405 of the Communications Act of 1934, as amended,
47 U.S.C. 405, and Sec. 1.429 of the Commission's rules, 47 CFR 1.429,
the Petition for Clarification and/or Reconsideration filed by NTCA-The
Rural Broadband Association and the Utah Rural Telecom Association on
September 18, 2014, is Granted in Part and Denied in Part to the extent
described herein.
196. It is further ordered that, pursuant to the authority
contained in section 405 of the Communications Act of 1934, as amended,
47 U.S.C. 405, and Sec. 1.429 of the Commission's rules, 47 CFR 1.429,
the Petition for Reconsideration or Clarification filed by the State E-
rate Coordinators' Alliance on September 18, 2014, is Granted in Part
and Denied in Part to the extent described herein.
197. It is further ordered that, pursuant to the authority
contained in section 405 of the Communications Act of 1934, as amended,
47 U.S.C. 405, and Sec. 1.429 of the Commission's rules, 47 CFR 1.429,
the Petition for Reconsideration filed by the Utah Education Network on
September 18, 2014, is Granted in Part and Denied in Part to the extent
described herein.
198. It is further ordered that, pursuant to the authority
contained in section 405 of the Communications Act of 1934, as amended,
47 U.S.C. 405, and Sec. 1.429 of the Commission's rules, 47 CFR 1.429,
the Petition for Reconsideration or Clarification filed by the West
Virginia Department of Education on September 18, 2014, is Granted in
Part and Denied in Part to the extent described herein.
199. It is further ordered that, pursuant to the authority
contained in section 405 of the Communications Act of 1934, as amended,
47 U.S.C. 405, and Sec. 1.429 of the Commission's rules, 47 CFR 1.429,
the Petition for Reconsideration filed by the United States Telecom
Association on September 18, 2014, is Denied.
200. It is further ordered that, pursuant to the authority
contained in section 405 of the Communications Act of 1934, as amended,
47 U.S.C. 405, and Sec. 1.429 of the Commission's rules, 47 CFR 1.429,
the Petition for Reconsideration and/or Clarification filed by Verizon
on September 18, 2014, is Granted in Part and Denied in Part to the
extent described herein.
201. It is further ordered that the Commission shall send a copy of
this Report and Order and Order on Reconsideration to Congress and the
Government Accountability Office pursuant to the Congressional Review
Act, see 5 U.S.C. 801(a)(1)(A).
202. It is furthered ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of the Report and Order, including the Final Regulatory
Flexibility Analysis and Initial Regulatory Flexibility Act Analysis,
to the Chief Counsel for Advocacy of the Small Business Administration.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR part 54 as follows:
PART 54--UNIVERSAL SERVICE
0
1. The authority citation for part 54 continues to read as follows:
Authority: Sections 1, 4(i), 5, 201, 205, 214, 219, 220, 254,
303(r), and 403 of the Communications Act of 1934, as amended, and
section 706 of the Telecommunications Act of 1996, as amended; 47
U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 254, 303(r), 403,
and 1302 unless otherwise noted.
Subpart A--General Information
Sec. 54.5 [Amended].
0
2. Section 54.5 is amended by removing the definition of ``Rural
area.''
0
3. Section 54.308 is amended by adding paragraph (b) to read as
follows:
Sec. 54.308 Broadband Public Interest Obligations for Recipients of
High-Cost Support.
* * * * *
(b) Rate-of-return carrier recipients of high-cost support are
required upon reasonable request to bid on category one
telecommunications and Internet access services in response to a posted
FCC Form 470 seeking broadband service that meets the connectivity
targets for the schools and libraries universal service support program
for eligible schools and libraries (as described in Sec. 54.501)
within that carrier's service area. Such bids must be at rates
reasonably comparable to rates charged to eligible schools and
libraries in urban areas for comparable offerings.
0
4. Section 54.309 is amended by revising paragraph (b) to read as
follows:
[[Page 5988]]
Sec. 54.309 Connect America Fund Phase II Public Interest
Obligations.
* * * * *
(b) Recipients of Connect America Phase II model-based support,
recipients of Phase II Connect America support awarded through a
competitive bidding process, and non-contiguous price cap carriers
receiving Phase II frozen support in lieu of model-based support are
required to bid on category one telecommunications and Internet access
services in response to a posted FCC Form 470 seeking broadband service
that meets the connectivity targets for the schools and libraries
universal service support program for eligible schools and libraries
(as described in Sec. 54.501) located within any area in a census
block where the carrier is receiving Phase II model-based support. Such
bids must be at rates reasonably comparable to rates charged to
eligible schools and libraries in urban areas for comparable offerings.
0
5. Section 54.313 is amended by revising paragraphs (e)(2)(iii) and
(iv), adding paragraph (e)(2)(v), revising paragraphs (f)(1)(i) and
(ii), and revising paragraph (f)(1)(iii) to read as follows:
Sec. 54.313 Annual reporting requirements for high-cost recipients.
* * * * *
(e) * * *
(2) * * *
(iii) A list of the geocoded locations to which the eligible
telecommunications carrier newly deployed facilities capable of
delivering broadband meeting the Sec. 54.309 public interest
obligations with Connect America support in the prior year. The final
progress report filed on July 1, 2021 must include the total number and
geocodes of all the supported locations that a price cap carrier has
built out to with service meeting the Sec. 54.309 public interest
obligations;
(iv) The total amount of Phase II support, if any, the price cap
carrier used for capital expenditures in the previous calendar year;
and
(v) A certification that it bid on category one telecommunications
and Internet access services in response to all FCC Form 470 postings
seeking broadband service that meets the connectivity targets for the
schools and libraries universal service support program for eligible
schools and libraries (as described in Sec. 54.501) located within any
area in a census block where the carrier is receiving Phase II model-
based support, and that such bids were at rates reasonably comparable
to rates charged to eligible schools and libraries in urban areas for
comparable offerings.
* * * * *
(f) * * *
(1) * * *
(i) A letter certifying that it is taking reasonable steps to
provide upon reasonable request broadband service at actual speeds of
at least 4 Mbps downstream/1 Mbps upstream, with latency suitable for
real-time applications, including Voice over Internet Protocol, and
usage capacity that is reasonably comparable to comparable offerings in
urban areas as determined in an annual survey, and that requests for
such service are met within a reasonable amount of time;
(ii) The number, names, and addresses of community anchor
institutions to which the ETC newly began providing access to broadband
service in the preceding calendar year; and
(iii) For rate-of-return carrier recipients of high-cost support, a
certification that it bid on category one telecommunications and
Internet access services in response to all reasonable requests in
posted FCC Form 470s seeking broadband service that meets the
connectivity targets for the schools and libraries universal service
support program for eligible schools and libraries (as described in
Sec. 54.501) within its service area, and that such bids were at rates
reasonably comparable to rates charged to eligible schools and
libraries in urban areas for comparable offerings.
Subpart F--Universal Service Support for Schools and Libraries
0
6. Section 54.502 is amended by revising paragraph (a) introductory
text, paragraph (b) introductory text, paragraphs (b)(1) through (3),
paragraph (b)(5), and paragraph (c) to read as follows:
Sec. 54.502 Eligible Services.
(a) Supported services. All supported services are listed in the
Eligible Services List as updated annually in accordance with paragraph
(d) of this section. The services in this subpart will be supported in
addition to all reasonable charges that are incurred by taking such
services, such as state and federal taxes. Charges for termination
liability, penalty surcharges, and other charges not included in the
cost of taking such service shall not be covered by the universal
service support mechanisms. The supported services fall within the
following general categories:
* * * * *
(b) Funding years 2015-2019. Libraries, schools, or school
districts with schools that receive funding for category two services
in any of the funding years between 2015 and 2019 shall be eligible for
support for category two services pursuant to paragraphs (b)(1) through
(6) of this section.
(1) Five-year budget. Each eligible school or library shall be
eligible for a budgeted amount of support for category two services
over a five-year funding cycle beginning the first funding year support
is received. Excluding support for internal connections received prior
to funding year 2015, each school or library shall be eligible for the
total available budget less any support received for category two
services in the prior funding years of that school's or library's five-
year funding cycle. The budgeted amounts and the funding floor shall be
adjusted for inflation annually in accordance with Sec. 54.507(a)(2).
(2) School budget. Each eligible school shall be eligible for
support for category two services up to a pre-discount price of $150
per student over a five-year funding cycle. Applicants shall calculate
the student count per school at the time the discount is calculated
each funding year. New schools may estimate the number of students, but
must repay any support provided in excess of the maximum budget based
on student enrollment the following funding year.
(3) Library budget. Each eligible library located within the
Institute of Museum and Library Services locale codes of ``11--City,
Large,'' defined as a territory inside an urbanized area and inside a
principal city with a population of 250,000 or more, ``12--City,
Midsize,'' defined as a territory inside an urbanized area and inside a
principal city with a population less than 250,000 and greater than or
equal to 100,000, or ``21--Suburb, Large,'' defined as a territory
outside a principal city and inside an urbanized area with population
of 250,000 or more, shall be eligible for support for category two
services, up to a pre-discount price of $5.00 per square foot over a
five-year funding cycle. All other eligible libraries shall be eligible
for support for category two services, up to a pre-discount price of
$2.30 per square foot over a five-year funding cycle. Applicants shall
provide the total area for all floors, in square feet, of each library
outlet separately, including all areas enclosed by the outer walls of
the library outlet and occupied by the library, including those areas
off-limits to the public.
* * * * *
[[Page 5989]]
(5) Requests. Applicants shall request support for category two
services for each school or library based on the number of students per
school building or square footage per library building. Category two
funding for a school or library may not be used for another school or
library. If an applicant requests less than the maximum budgeted
category two support available for a school or library, the applicant
may request the remaining balance in a school's or library's category
two budget in subsequent funding years of the five-year funding cycle.
The costs for category two services shared by multiple eligible
entities shall be divided reasonably between each of the entities for
which support is sought in that funding year.
* * * * *
(c) Funding year 2020 and beyond. Absent further action from the
Commission, each eligible library or school in a school district that
either did not receive funding for category two services in funding
years 2015 through 2019 or has completed its five-year funding cycle,
shall be eligible for support for category two services, except basic
maintenance services, no more than twice every five funding years. For
the purpose of determining eligibility, the five-year period begins in
any funding year in which the school or library receives discounted
category two services other than basic maintenance services. If a
school or library receives category two services other than basic
maintenance services that are shared with other schools or libraries
(for example, as part of a consortium), the shared services will be
attributed to the school or library in determining whether it is
eligible for support. Support is not available for category two
services provided to or within non-instructional school buildings or
separate library administrative buildings unless those category two
services are essential for the effective transport of information to or
within one or more instructional buildings of a school or non-
administrative library buildings, or the Commission has found that the
use of those services meets the definition of educational purpose, as
defined in Sec. 54.500.
* * * * *
0
7. Section 54.503 is amended by revising paragraph (c)(1) to read as
follows:
Sec. 54.503 Competitive bidding requirements.
* * * * *
(c) Posting of FCC Form 470. (1) An eligible school, library, or
consortium that includes an eligible school or library seeking bids for
eligible services under this subpart shall submit a completed FCC Form
470 to the Administrator to initiate the competitive bidding process.
The FCC Form 470 and any request for proposal cited in the FCC Form 470
shall include, at a minimum, the following information:
(i) A list of specified services for which the school, library, or
consortium requests bids;
(ii) Sufficient information to enable bidders to reasonably
determine the needs of the applicant;
(iii) To the extent an applicant seeks the following services or
arrangements, an indication of the applicant's intent to seek:
(A) Construction of network facilities that the applicant will own;
(B) A dark-fiber lease, indefeasible right of use, or other dark-
fiber service agreement or the modulating electronics necessary to
light dark fiber; or
(C) A multi-year installment payment agreement with the service
provider for the non-discounted share of special construction costs;
(iv) To the extent an applicant seeks construction of a network
that the applicant will own, the applicant must also solicit bids for
both the services provided over third-party networks and construction
of applicant-owned network facilities, in the same request for
proposals;
(v) To the extent an applicant seeks bids for special construction
associated with dark fiber or bids to lease and light dark fiber, the
applicant must also solicit bids to provide the needed services over
lit fiber; and
(vi) To the extent an applicant seeks bids for equipment and
maintenance costs associated with lighting dark fiber, the applicant
must include these elements in the same FCC Form 470 as the dark fiber.
* * * * *
0
8. Section 54.504 is amended by revising paragraph (a)(1)(iii) to read
as follows:
Sec. 54.504 Requests for services.
(a) * * *
(1) * * *
(iii) The entities listed on the FCC Form 471 application have
secured access to all of the resources, including computers, training,
software, maintenance, internal connections, and electrical
connections, necessary to make effective use of the services purchased.
The entities listed on the FCC Form 471 will pay the discounted charges
for eligible services from funds to which access has been secured in
the current funding year or, for entities that will make installment
payments, they will ensure that they are able to make all required
installment payments. The billed entity will pay the non-discount
portion of the cost of the goods and services to the service
provider(s).
* * * * *
0
9. Section 54.505 is amended by revising paragraph (b) introductory
text, paragraph (b)(3) introductory text, paragraph (b)(3)(i), and
paragraphs (c) and (f) to read as follows:
Sec. 54.505 Discounts.
* * * * *
(b) Discount percentages. Except as provided in paragraph (f), the
discounts available to eligible schools and libraries shall range from
20 percent to 90 percent of the pre-discount price for all eligible
services provided by eligible providers, as defined in this subpart.
The discounts available to a particular school, library, or consortium
of only such entities shall be determined by indicators of poverty and
high cost.
* * * * *
(3) The Administrator shall classify schools and libraries as
``urban'' or ``rural'' according to the following designations.
(i) The Administrator shall designate a school or library as
``urban'' if the school or library is located in an urbanized area or
urban cluster area with a population equal to or greater than 25,000,
as determined by the most recent rural[hyphen]urban classification by
the Bureau of the Census. The Administrator shall designate all other
schools and libraries as ``rural.''
* * * * *
(c) Matrices. Except as provided in paragraphs (d) and (f) of this
section, the Administrator shall use the following matrices to set
discount rates to be applied to eligible category one and category two
services purchased by eligible schools, school districts, libraries, or
consortia based on the institution's level of poverty and location in
an ``urban'' or ``rural'' area.
[[Page 5990]]
----------------------------------------------------------------------------------------------------------------
Category one schools and Category two schools and
------------------------------------------------------------- libraries discount libraries discount
matrix matrix
----------------------------------------------------------------------------------------------------------------
Discount level Discount level
---------------------------------------------------
% of students eligible for national school lunch program Urban Rural Urban Rural
discount discount discount discount
----------------------------------------------------------------------------------------------------------------
< 1......................................................... 20 25 20 25
1-19........................................................ 40 50 40 50
20-34....................................................... 50 60 50 60
35-49....................................................... 60 70 60 70
50-74....................................................... 80 80 80 80
75-100...................................................... 90 90 85 85
----------------------------------------------------------------------------------------------------------------
* * * * *
(f) Additional discounts for State matching funds for special
construction. Federal universal service discounts shall be based on the
price of a service prior to the application of any state-provided
support for schools or libraries. When a governmental entity described
below provides funding for special construction charges for networks
that meet the long-term connectivity targets for the schools and
libraries universal service support program, the Administrator shall
match the governmental entity's contribution as provided for below:
(1) All E-rate applicants. When a State government provides funding
for special construction charges for a broadband connection to a school
or library the Administrator shall match the State's contribution on a
one-dollar-to-one-dollar basis up to an additional 10 percent discount,
provided however that the total support from federal universal service
and the State may not exceed 100 percent.
(2) Tribal schools. When a State government, Tribal government, or
federal agency provides funding for special construction charges for a
broadband connection to a school operated by the Bureau of Indian
Education or by a Tribal government, the Administrator shall match the
governmental entity's contribution on a one-dollar-to-one-dollar basis
up to an additional 10 percent discount, provided however that the
total support from federal universal service and the governmental
entity may not exceed 100 percent.
(3) Tribal libraries. When a State government, Tribal government,
or federal agency provides funding for special construction charges for
a broadband connection to a library operated by Tribal governments, the
Administrator shall match the governmental entity's contribution on a
one-dollar-to-one-dollar basis up to an additional 10 percent discount,
provided however that the total support from federal universal service
and the governmental entity may not exceed 100 percent.
0
10. Section 54.507 is amended by revising paragraphs (a) introductory
text, (a)(1) and (3), (c), and (d) to read as follows:
Sec. 54.507 Cap.
(a) Amount of the annual cap. The aggregate annual cap on federal
universal service support for schools and libraries shall be $3.9
billion per funding year, of which $1 billion per funding year will be
available for category two services, as described in Sec.
54.502(a)(2), unless demand for category one services is higher than
available funding.
(1) Inflation increase. In funding year 2016 and subsequent funding
years, the $3.9 billion funding cap on federal universal service
support for schools and libraries shall be automatically increased
annually to take into account increases in the rate of inflation as
calculated in paragraph (a)(2) of this section.
* * * * *
(3) Public notice. When the calculation of the yearly average GDP-
CPI is determined, the Wireline Competition Bureau shall publish a
public notice in the Federal Register within 60 days announcing any
increase of the annual funding cap including any increase to the $1
billion funding level available for category two services based on the
rate of inflation.
* * * * *
(c) Requests. The Administrator shall implement an initial filing
period that treats all schools and libraries filing an application
within that period as if their applications were simultaneously
received. The initial filing period shall begin and conclude on dates
to be determined by the Administrator with the approval of the Chief of
the Wireline Competition Bureau. The Administrator shall maintain on
the Administrator's Web site a running tally of the funds already
committed for the existing funding year. The Administrator may
implement such additional filing periods as it deems necessary.
(d) Annual filing requirement. (1) Schools and libraries, and
consortia of such eligible entities shall file new funding requests for
each funding year no sooner than the July 1 prior to the start of that
funding year. Schools, libraries, and eligible consortia must use
recurring services for which discounts have been committed by the
Administrator within the funding year for which the discounts were
sought.
(2) Installation of category one non-recurring services may begin
on January 1 prior to the July 1 start of the funding year, provided
the following conditions are met:
(i) Construction begins after selection of the service provider
pursuant to a posted FCC Form 470,
(ii) A category one recurring service must depend on the
installation of the infrastructure, and
(iii) The actual service start date for that recurring service is
on or after the start of the funding year (July 1).
(3) Installation of category two non-recurring services may begin
on April 1 prior to the July 1 start of the funding year.
(4) The deadline for implementation of all non-recurring services
will be September 30 following the close of the funding year. An
applicant may request and receive from the Administrator an extension
of the implementation deadline for non-recurring services if it
satisfies one of the following criteria:
(i) The applicant's funding commitment decision letter is issued by
the Administrator on or after March 1 of the funding year for which
discounts are authorized;
(ii) The applicant receives a service provider change authorization
or service substitution authorization from the Administrator on or
after March 1 of the funding year for which discounts are authorized;
(iii) The applicant's service provider is unable to complete
implementation for reasons beyond the service provider's control; or
[[Page 5991]]
(iv) The applicant's service provider is unwilling to complete
installation because funding disbursements are delayed while the
Administrator investigates the application for program compliance.
* * * * *
Sec. 54.509 [Removed and Reserved]
0
11. Remove and reserve Sec. 54.509.
Sec. 54.518 [Removed and Reserved]
0
12. Remove and reserve Sec. 54.518.
Subpart I--Administration
0
13. Revise Sec. 54.720 to read as follows:
Sec. 54.720 Filing deadlines.
(a) An affected party requesting review or waiver of an
Administrator decision by the Commission pursuant to Sec. 54.719,
shall file such a request within sixty (60) days from the date the
Administrator issues a decision.
(b) An affected party requesting review of an Administrator
decision by the Administrator pursuant to Sec. 54.719(a), shall file
such a request within sixty (60) days from the date the Administrator
issues a decision.
(c) In all cases of requests for review filed under Sec. 54.719(a)
through (c), the request for review shall be deemed filed on the
postmark date. If the postmark date cannot be determined, the applicant
must file a sworn affidavit stating the date that the request for
review was mailed.
(d) Parties shall adhere to the time periods for filing oppositions
and replies set forth in 47 CFR 1.45.
[FR Doc. 2015-01414 Filed 2-3-15; 8:45 am]
BILLING CODE 6712-01-P