May 7, 1997 FCC Universal Service Order
Section X (regarding Schools and Libraries).
FCC 97-157.
Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order.
12 FCC Rcd 8776 (1997).

Source: FCC.  This document does not include footnotes from the original.

X. Schools and Libraries

A. Overview.

B. Telecommunications Carrier Functionalities and Services Eligible for Support.

C. Discount Methodology.

D. Restrictions Imposed on Schools and Libraries.

E. Funding Mechanisms for Schools and Libraries.

F. Access to Advanced Telecommunications and Information Services.

G. Sections 706 and 708 of the 1996 Act.

H. Initiation.

B. Telecommunications Carrier Functionalities and Services Eligible for Support

1. Background

426. Telecommunications Services and Internet Access. Section 254 defines the services that are to be supported for schools and libraries in terms of "telecommunications services," "special" or "additional" services, and access to "advanced telecommunications and information services." Congress recognized the importance of telecommunications and related services to schools and libraries when it enacted the 1996 Act:

The provisions of subsection [254] (h) will help open new worlds of knowledge, learning and education to all Americans -- rich and poor, rural and urban. They are intended, for example, to provide the ability to browse library collections, review the collections of museums, or find new information on the treatment of illness, to Americans everywhere via schools and libraries. This universal access will assure that no one is barred from benefiting from the power of the Information Age.

427. Section 254(c)(3) states that "[i]n addition to the services included in the definition of universal service under paragraph [c] (1), the Commission may designate additional services for such support mechanisms for schools, [and] libraries . . . for the purposes of subsection [254] (h)." Section 254(h)(2) states that "[t]he Commission shall establish competitively neutral rules to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and non-profit elementary and secondary school classrooms . . . and libraries." Moreover, in its consideration of "additional" services under section 254(c)(3), Congress authorized the Commission to specify a distinct definition of universal service that would apply only to public institutional telecommunications users. The conferees stated that they expected "the Commission and the Joint Board to take into account the particular needs of . . . K-12 schools and libraries."

428. In the Recommended Decision, the Joint Board recommended that the Commission adopt rules that give schools and libraries the maximum flexibility to purchase whatever package of telecommunications services they believe will meet their telecommunications needs most effectively and efficiently. The Joint Board also recommended that the Commission make discounts for Internet access available to schools and libraries pursuant to section 254(h)(2)(A). According to the Joint Board, Internet access should be defined as basic conduit, i.e., non-content access from the school or library to the backbone Internet network, which would include the communications link to the Internet service provider, whether through dial-up access or via a leased line, the links to other Internet sites via the Internet backbone, generally provided by an Internet service provider for a monthly subscription fee, if applicable, and electronic mail. Finally, the Joint Board declined to recommend that a discount mechanism for other information services be established at this time.

429. Intra-School and Intra-Library Connections. Sections 254(b)(6) and 254(h)(2)(A) specifically refer to the provision of telecommunications and other services directly to classrooms. Section 254(b)(6) states that "elementary and secondary school classrooms should have access to advanced telecommunications services." Further, section 254(h)(2) provides that "[t]he Commission shall establish competitively neutral rules . . . to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and non-profit elementary and secondary school classrooms. . . and libraries." Congress explained that "[n]ew subsection (h) of Section 254 is intended to ensure that . . . elementary and secondary school classrooms and libraries have affordable access to modern telecommunications services." Congress further stated that "[t]he ability of K-12 [kindergarten to 12th grade] classrooms, [and] libraries . . . to obtain access to advanced telecommunications services is critical to ensuring that these services are available on a universal basis." In the floor debate, Senators Snowe and Rockefeller stated that, while 35 percent of schools have access to the Internet, only three percent of the nation's classrooms are connected to the Internet. Senator Rockefeller noted that cost was a significant barrier to classrooms having access to the Internet. The Further Comment Public Notice asked explicitly whether section 254(h) contemplates that "inside wiring or other internal connections to classrooms may be eligible for universal service support of telecommunications services provided to schools and libraries" and requested estimates of the cost of such support.

430. In the Recommended Decision, the Joint Board recommended that the Commission permit schools and libraries to secure internal connections at a discount pursuant to section 254(h)(2)(A). The Joint Board also recommended that the Commission establish competitively neutral rules that would provide support to any provider of internal connections that the school or library selects.

2. Discussion

a. Telecommunications Services

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

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

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

434. We reject SBC's arguments that authorizing discounts for all telecommunications services would be "arbitrary, unreasonable, and otherwise unlawful," and would abdicate our responsibility to select a single set of services for schools and libraries. We limit section 254(c)(3) telecommunications services to those that are commercially available, and we find no reason to interpret section 254(c)(3) to require us to adopt a more narrow definition of eligible services. We also reject New York DPS's assertion that our approach limits state flexibility to adopt intrastate programs. We observe that a state preferring a program that targets a narrower or broader set of services may make state funds available to schools or libraries that purchase those services.

435. CTIA asks that the Commission go beyond simply allowing schools and libraries to choose wireless services to "preempt any [s]tate or local statutes or regulations which exclude, or have the effect of excluding, wireless carriers." We conclude, however, that section 253 of the Act adequately preempts any state or local laws or regulations that would preclude wireless carriers from providing service to schools and libraries. Specifically, section 253(a) provides that no state or local statute, regulation, or requirement may "prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service." Moreover, section 253(d) empowers the Commission to preempt any state or local statute, regulation, or legal requirement that prohibits any entity from providing interstate or intrastate telecommunications services.

b. Internet Access

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

437. We observe that section 254(c)(3) grants us authority to "designate additional services for support" and section 254(h)(1)(B) authorizes us to fund any section 254(c)(3) services. The generic universal service definition in section 254(c)(1) and the rate provision regarding special services for rural health care providers in section 254(h)(1)(A) are both explicitly limited to telecommunications services. In the education context, however, the statutory references are to the broad class of "services," rather than the narrower class of "telecommunications services." Specifically, section 254(c)(3) refers to "additional services," while section 254(h)(1)(B) refers to "any of its services"; neither provision refers to the narrower class of telecommunications services. In addition, section 254(a)(1) and (a)(2) mandate that the Commission define the "services that are supported by Federal universal service support mechanisms" but does not limit support to telecommunications services. The use of the broader term "services" in section 254(a) provides further validation for the inclusion of services in addition to telecommunications services in sections 254(c)(3) and 254(h)(1)(B).

438. Some parties challenge our authority to support services other than telecommunications services, arguing that the various sections of section 254 referring to "services" must be read in concert. For example, BellSouth maintains that section 254(c)(1) defines universal service as "an evolving level of telecommunications services," while AT&T notes that the subsequent references to "additional services" in section 254(c)(3) relate directly back to the "telecommunications services" referenced in section 254(c)(1). Had Congress intended to so limit the 254(c)(3) additional services, however, it would have used the phrase "additional telecommunications services" rather than the broader term "additional services" that it chose to use.

439. We also reject BellSouth's argument that the fact that section 254(h) is entitled "Telecommunications Services for Certain Providers" leads to the conclusion that the only services covered by that subsection are telecommunications services. To the contrary, within section 254(h) Congress specified which services must be "telecommunications services" in order to be eligible for support. As noted above, the rate provision regarding special services for rural health care providers, section 254(h)(1)(A), is explicitly limited to "telecommunications services." Thus, the term used in section 254(h)(1)(B), "any of its services that are within the definition of universal service under subsection (c)(3)," cannot be read as a generic reference to the heading of that section. Rather, the varying use of the terms "telecommunications services" and "services" in sections 254(h)(1)(A) and 254(h)(1)(B) suggests that the terms were used consciously to signify different meanings. In addition, the mandate in section 254(h)(2)(A) to enhance access to "advanced telecommunications and information services," particularly when read in conjunction with the legislative history as discussed below, suggests that Congress did not intend to limit the support provided under section 254(h) to telecommunications services. We conclude, therefore, that we can include the "information services," e.g., protocol conversion and information storage, that are needed to access the Internet, as well as internal connections, as "additional services" that section 254(h)(1)(B), through section 254(c)(3), authorizes us to support.

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

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

442. Moreover, we note that the Joint Explanatory Statement stated that:

For example, the Commission could determine that telecommunications and information services that constitute universal service for classrooms and libraries shall include dedicated data links and the ability to obtain access to educational materials, research information, statistics, information on Government services, reports developed by Federal, State and local governments, and information services which can be carried over the Internet.

443. We find that this approach of providing discounts for basic conduit access to the Internet should not favor Internet access when provided as pure conduit versus Internet access bundled with minimal content; rather, this approach should simply encourage schools and libraries to select the most cost-effective form of transmission access, separate of content. We reject BellSouth's assertion that, by providing this support, we would usurp the power of local communities to act in this area, because communities would still be able to spend their own funds on whatever technologies or services they choose to purchase. Finally, we find no need to resolve the jurisdictional status of particular services provided by telecommunications carriers to schools and libraries through universal service support at this time, as Netscape urges us to do, because the schools and libraries discount program we adopt will only become effective in states that set intrastate discounts that match the interstate discounts.

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

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

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

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

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

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

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

447. This approach will create three possible scenarios for schools and libraries. First, if the telecommunications carrier bundles access with a package of content that is otherwise available free of charge on the Internet because the content is advertiser-supported, bundling that content with Internet access will not permit the telecommunications carrier to recover any additional remuneration other than the fee for the access. Second, if the telecommunications carrier offers other Internet users access to its proprietary content for a price, it may treat the difference between that price and the price it charges for its access only package as the price of non-content Internet access. For example, if an IXC offers a $50.00 per month service that includes unlimited Internet access, as well as free access to particular proprietary educational software services, and the proprietary services are available independently for $30.00 per month, schools and libraries purchasing such a package will be eligible for support on $50.00 - $30.00 = $20.00 per month. Third, if a telecommunications carrier providing Internet access offers a bundled package of content that it does not offer on an unbundled basis and thus, the fair price of the conduit element cannot be ascertained readily, the school or library may receive support for such an Internet access package only if it can affirmatively show that the price of the carrier's Internet access package was still the most cost-effective manner for the school or library to secure basic, conduit access to the Internet.

448. AOL and Netscape suggest imposing a cap on the rates for Internet access for which a service provider will be compensated from universal service support mechanisms. AOL asserts that schools and libraries finding it to be the best service for gaining access to the Internet should be able to receive a discount on AOL's service, even if that service is not less expensive than some pure conduit service. AOL also suggests that schools and libraries be permitted to recover the entire amount of bundled content and conduit, subject to a cap based on a nationwide average charge for Internet access. We find the record lacking in many details of how this approach would work, including how a nationwide average of Internet access rates would be calculated and why such an average would not also include an average charge for the proprietary content included by some Internet access providers. Therefore, we find it impractical to adopt this approach at this time.

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

c. Intra-School and Intra-Library Connections

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

451. We find that, as discussed above, the Act permits universal service support for an expanded range of services beyond telecommunications services. Specifically, we conclude that the installation and maintenance of internal connections fall within the broad scope of the universal service support provisions of sections 254(c)(3) and (h)(1)(B), in the context of the broad goals of section 254(h)(2)(A). Nothing in section 254 excludes internal connections from the scope of "additional services" for schools and libraries that can be designated for support under section 254(c)(3) or the corresponding services for which schools and libraries can receive discounts under section 254(h)(1)(B). AirTouch, Cincinnati Bell, and GTE assert that we cannot provide universal service support for internal connections because the Commission has already deregulated inside wiring, i.e., designated it as a non-common carrier service. Consistent with our finding that a broad set of services should be supported, we also find that we should not limit support to just those services that are offered on a common carrier basis. Cincinnati Bell also contends that, because internal connections have been deregulated for some time and the market is competitive, schools and libraries have opportunities to solicit bids from many different providers and to negotiate for discounts to meet their needs, so there is no need to provide discounts on internal connections. In contrast, many education representatives submitted comments urging the Joint Board and the Commission to discount internal connections because the cost of internal connections constitutes a significant barrier to technology deployment. These comments suggest that the fact that a service has been deregulated and that competition has developed in some instances does not provide conclusive evidence that in all circumstances, schools and libraries will benefit from competition such that services will be affordable to them or that no additional discount is needed. The Act does not distinguish between competitive and non-competitive services in developing a program to establish explicit universal service support mechanisms. Indeed, we hope that all of the services provided by telecommunications carriers will, over time, become both competitive and unregulated.

452. We agree with the Joint Board's response to those parties arguing that the physical facilities providing intraschool and intralibrary connections are "goods" or "facilities" rather than section 254(c)(3) "services." The Joint Board observed that not only are the installation and maintenance of such facilities services, but the cost of the actual facilities may be relatively small compared to the cost of labor involved in installing and maintaining internal connections. The Joint Board noted that the D.C. Circuit has repeatedly referred to the installation and maintenance of inside wiring as services. The Joint Board also noted that adopting the opposite view would treat internal connections as a facility ineligible for support if a school purchased it but as a service eligible for support if a school leased the facility from a third party. Given that the provision of internal connections is a service, we conclude that we have authority to provide discounts on the installation and maintenance of internal connections under sections 254(c)(3) and 254(h)(1)(B).

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

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

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

456. As further evidence that Congress intended that the installation and maintenance of internal connections be eligible for universal service support, the Joint Board noted that, during Senate consideration of this provision, Senators Snowe and Rockefeller emphasized that, at the time, 35 percent of public schools had access to the Internet, but only three percent of classrooms were connected to the Internet. As the Joint Board also observed, in his discussion of the Snowe-Rockefeller-Exon-Kerrey amendment, Senator Rockefeller cited the lack of funds to buy computer equipment as one reason for the lack of access to the Internet, but added that the expense of connecting classrooms to one another represents another significant barrier to gaining access.

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

458. We reject the claims of GTE and Motorola that our program will favor wireline or other telecommunications carriers because we are also providing discounts for services provided by wireless carriers. Moreover, in addition to our direct coverage of non-telecommunications carriers below, we expect non-telecommunications carriers to compete to provide internal connections to schools and libraries by entering partnerships and joint ventures with telecommunications carriers. For example, an electrician or a cable television system operator might offer to subcontract with an IXC to provide, respectively, internal connections or a local area network (LAN) connecting schools in a district or libraries in a library system. Thus, without regard to our decision below to provide discounts for services to eligible schools and libraries provided by non-telecommunications carriers, we conclude that our decision to provide discounts for services to eligible schools and libraries provided by telecommunications carriers is competitively neutral and will facilitate, not impede, the development of the internal connections market. Moreover, particularly in light of the legislative history, providing discounts for service to eligible schools and libraries provided by telecommunications carriers strongly serves the public interest.

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

460. Applying this standard, we agree with the Joint Board's recommendation that support should be available to fund discounts on such items as routers, hubs, network file servers, and wireless LANs and their installation and basic maintenance because all are needed to switch and route messages within a school or library. Their function is solely to transmit information over the distance from the classroom to the Internet service provider, when multiple classrooms share the use of a single channel to the Internet service provider. We also agree with Oracle that "internal connections" would include the software that file servers need to operate and that we should place no specific restrictions on the size, i.e., type, of the internal connections network covered. Consistent with the Joint Board's finding that the installation and maintenance of internal connections are services, we conclude that support should be available to fund discounts on basic installation and maintenance services necessary to the operation of the internal connections network. We expressly deny support, however, to finance the purchase of equipment that is not needed to transport information to individual classrooms. A personal computer in the classroom, for example, does not provide such a necessary transmission function and would not be supported, consistent with the Joint Board's recommendation. A personal computer is not intended to transmit information over a distance, unless it is programmed to operate as a network switch or network file server. Thus, a personal computer could not be installed, maintained, purchased, or leased at a discount for which the seller or lessor would be compensated from universal service support mechanisms, unless it was used solely as a switch or file server. Similarly, universal service support discounts will not be financed for fax machines or modems because they are not necessary to transmit information to individual classrooms. We also find that no universal service support will be provided for asbestos removal.

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

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

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

Go to Section C. Discount Methodology.