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May 7, 1997 FCC Universal Service Order Source: FCC. This document does not include footnotes from the original.
D. Restrictions Imposed On Schools and Libraries 1. Background 552. Section 254 places four restrictions on schools and libraries receiving services at discounts funded under universal service support mechanisms. First, only certain schools and libraries are eligible for "preferential rates or treatment" under section 254(h). To be considered eligible, schools must meet the statutory definition of an elementary or secondary school found in the Elementary and Secondary Education Act of 1965, must not operate as a for-profit business, and must not have an endowment exceeding $50 million. To be considered eligible, a library or library consortium must be "eligible for assistance from a State library administrative agency under the Library Services and Technology Act," and must not operate as a for-profit business. Second, telecommunications services and network capacity provided to schools and libraries under section 254(h) "may not be sold, resold, or otherwise transferred by such user in consideration for money or any other thing of value." Third, section 254(h)(1)(B) requires that schools and libraries make a "bona fide request" for services within the definition of universal service. Fourth, any such services requested by schools and libraries must be used for "educational purposes." 553. The Recommended Decision addressed issues relating to eligibility, resale, bona fide requests for educational purposes, auditing, and a carrier notification requirement. The Joint Board observed that section 254(h) explicitly defines the class of entities eligible for support. The Joint Board recommended that eligible schools and libraries be permitted to aggregate their needs for eligible services with those of both eligible and ineligible entities, concluding that those not directly eligible for support should not be permitted to gain eligibility by participating in consortia with those who are eligible. The Joint Board also recommended that the Commission interpret section 254(h)(3) to prohibit any resale whatsoever of services purchased pursuant to a section 254 discount. 2. Discussion 554. Eligibility. The Joint Board concluded that, to be eligible for universal service support, a school must meet the statutory definition of an elementary or secondary school found in the Elementary and Secondary Education Act of 1965, must not operate as a for-profit business, and must not have an endowment exceeding $50 million. We agree and conclude that all schools that fall within the definition contained in the Elementary and Secondary Education Act of 1965 and meet the criteria of section 254(h), whether public or private, will be eligible for universal service support. Illinois Board of Education and Community Colleges ask that we expand the definition of schools to include entities that educate elementary and secondary school aged students, and APTS asks that we permit discounts for educational television station licensees as a way to support distance learning. We find, however, consistent with the Joint Board and with SBC's observation, that section 254(h)(5)(A) does not grant us discretion to expand the statutory definition of schools. For the same reason, we must reject the West Virginia Consumer Advocate's suggestion that we presume private and parochial schools to be eligible even if they do not meet the statutory definition of schools. 555. We note NTIA's concern that certain tribal schools may not meet the statutory definition of schools and, therefore, may not be eligible for universal service support. While 187 schools funded by the Bureau of Indian Affairs were included in the total number of schools cited by the Joint Board, NTIA contends that there may be additional schools established by tribes or tribal organizations. We conclude that, if those schools meet the statutory definition of school and the other eligibility criteria under section 254(h), they will be eligible for universal service support. We also conclude that section 254(h)(5)(A) does not give us the discretion to provide universal service support to any entity educating elementary and secondary school aged children unless that entity meets the statutory definition of school. 556. Section 254(h)(5) does not include an explicit definition of libraries eligible for support. Rather, in section 254(h)(4)'s eligibility criteria, Congress cited LSCA. The Joint Board, therefore, used the definition of library found in Title III of the LSCA. In late 1996, however, Congress amended section 254(h)(4) to replace citation to the LSCA with a citation to the newly enacted LSTA. In light of this amendment to section 254(h)(4), we find it necessary to look anew at the definitions of library and library consortium and adopt definitions that are consistent with the directives of section 254(h). 557. LSTA defines a library more broadly than did the former LSCA and includes, for example, academic libraries and libraries of primary and secondary schools. If, for purposes of determining entities eligible for universal service support, we were to adopt a definition that includes academic libraries, we are concerned that the congressional intent to limit the availability of discounts under section 254(h) could be frustrated. Specifically, in section 254(h)(5), Congress limited eligibility for support to elementary and secondary schools that meet certain criteria, choosing to target support to K-12 schools rather than attempting to cover the broader set of institutions of higher learning. If we were to adopt the new expansive definition of library, institutions of higher learning could assert that their libraries, and thus effectively their entire institutions, were eligible for support. For example, a university could establish "branch libraries" in classrooms and even student dormitories, making them eligible for universal service support as "academic libraries." Such a scenario could result in otherwise ineligible institutions receiving universal service support, thus draining a substantial amount of the support Congress intended for eligible schools and libraries. Similarly, elementary or secondary schools with endowments of more than $50 million that would otherwise be excluded from receiving support under section 254(h)(4) could establish "branch libraries" in each classroom, making them eligible for universal service support as elementary or secondary school libraries. This scenario would also result in otherwise ineligible entities, i.e., elementary and secondary schools with endowments exceeding $50 million, draining a significant amount of universal service support away from entities that Congress specifically targeted for support. Both of these outcomes would circumvent the section 254(h) limitation on support to eligible elementary and secondary schools, would contradict Congress's intent to target support to K-12 schools and libraries, and would inflict the most harm upon the economically disadvantaged schools and libraries eligible for the greatest percentages of universal service support. 558. We, therefore, adopt the LSTA definition of library for purposes of section 254(h), but we conclude that a library's eligibility for universal service funding will depend on its funding as an independent entity. That is, because institutions of higher education are not eligible for universal service support, an academic library will be eligible only if its funding is independent of the funding of any institution of higher education. By "independent," we mean that the budget of the library is completely separate from any institution of learning. This independence requirement is consistent with both congressional intent and the expectation of the Joint Board that universal service support would flow to an institution of learning only if it is an elementary or secondary school. Similarly, because elementary and secondary schools with endowments exceeding $50 million are not eligible for universal service support, a library connected to such a school will be eligible only if it is funded independently from the school. 559. We adopt the independent library requirement because we are also concerned that, in some instances where a library is attached, for funding purposes, to an otherwise eligible school, the library could attempt to receive support twice, first as part of the school and second as an independent entity. We find that the independence requirement will ensure that an elementary or secondary school library cannot collect universal service support twice for the same services. 560. When Congress amended section 254(h)(4) in late 1996, it added the term "library consortium" to the entities potentially eligible for universal service support. We adopt the definition of library consortium as it is defined in LSTA, with one modification. We eliminate "international cooperative association of library entities" from our definition of library consortia eligible for universal service support because we conclude that this modified definition is consistent with the directives of section 254(h). 561. We find that the inclusion of "library consortium" in the LSTA definition of library should address the concern of MassLibrary that library consortia be eligible for universal service support. Moreover, in response to Community Colleges, we conclude that community college libraries are eligible for support only if they meet the definition above and other requirements of section 254(h). In addition, as described above, the Joint Board recommended, and we agree, that all eligible schools and libraries should be permitted to enter into consortia with other schools and libraries. 562. The Joint Board concluded that entities not explicitly eligible for support should not be permitted to gain eligibility for discounts by participating in consortia with those who are eligible, even if the former seek to further educational objectives for students who attend eligible schools. We agree with, and therefore adopt, this Joint Board recommendation. Nevertheless, we look to ineligible schools and libraries to assume leadership roles in network planning and implementation for educational purposes. Although we conclude that Congress did not intend that we finance the costs of network planning by ineligible schools and libraries through universal service support mechanisms, we encourage universities and other repositories of information to make their online facilities available to other schools and libraries. We note that eligible schools and libraries will be eligible for discounts on any dedicated lines they purchase to connect themselves to card catalogues or databases of scientific or other educational data maintained by colleges or universities, databases of research materials maintained by religious institutions, and any art or related materials maintained by private museum archives. Connections between eligible and ineligible institutions can be purchased by an eligible institution subject to the discount as long as the connection is used for the educational purposes of the eligible institution. For example, an eligible school could use universal service support discounts to pay for satellite connections to enable students or teachers to participate in academic symposiums or lectures, but not to receive live broadcasts of sporting events. 563. In response to Benton's, NASTD's, and Georgia PSC's comments, we emphasize that we encourage all eligible entities to participate in consortia because such participation should enable them to secure the telecommunications and information services and facilities they need under terms and conditions better than they could negotiate alone. We conclude that, because they may be able to offer service providers economies of scale and scope that reduce the costs of serving them, consortia may be able to negotiate lower prices with providers competing to serve them better than schools or libraries could on their own. Although consortia-negotiated prices might commonly be characterized as "discounted prices," because they are lower than the prices that individual members of the consortia would be able to secure on their own, we still characterize them as "pre-discount prices" for the purposes of section 254(h) because they are the prices eligible schools and libraries could obtain even without application of the relevant universal service support discounts. All members of such consortia, including those ineligible for universal service support, would benefit from these lower "pre-discount" prices produced by such statewide, regional, or large group contracts. 564. While those consortium participants ineligible for support would pay the lower pre-discount prices negotiated by the consortium, only eligible schools and libraries would receive the added benefit of universal service discount mechanisms. Those portions of the bill representing charges for services purchased by or on behalf of and used by an eligible school, school district, library, or library consortia for educational purposes would be reduced further by the discount percentage to which the school or library using the services was entitled under section 254(h). The service provider would collect that discount amount from universal service support mechanisms. The prices for services that were not actually used by eligible entities for educational purposes would not be reduced below the contract price. 565. Finally, several commenters ask that universal service support be targeted to schools and libraries serving individuals with disabilities. We acknowledge the barriers faced by individuals with disabilities in accessing telecommunications, and we note that individuals with disabilities attending eligible schools and using the resources of eligible libraries will benefit from universal service support mechanisms to the extent that those institutions qualify for universal service support. We agree with the Joint Board, however, that the specific barriers faced by individuals with disabilities in accessing telecommunications are best addressed in the proceeding to implement section 255 of the Act. As we concluded in the low-income section of this Order, neither the text nor the legislative history of section 254 indicates that Congress intended for us to create new support mechanisms targeted specifically to individuals with disabilities. 566. Resale. Section 254(h)(3) bars entities that obtain discounts from reselling the discounted services. It states that:
We concur with the Joint Board's recommendation that we not interpret the section 254(h)(3) bar to apply only to resale for profit. To adopt the suggestion of EDLINC and permit waivers for resale to entities that serve educational purposes would permit schools and libraries to circumvent the eligibility requirements discussed above and would provide services at a discount to entities that Congress did not choose to cover. Moreover, adopting EDLINC's suggestion would rapidly deplete the funds available to the eligible schools and libraries that Congress intended to benefit from the universal service discount program. The same reasoning applies to the request by the Vermont PSB that schools and libraries be permitted to resell services if they charge the discounted prices that they pay for them. We agree with the Joint Board's recommendation that we interpret section 254(h)(3) to restrict any resale whatsoever of services purchased pursuant to a section 254 discount to entities that are not eligible for support. 567. We agree, however, with the Vermont PSB that the section 254(h)(3) prohibition on resale does not prohibit an eligible entity from charging fees for any services that schools or libraries purchase that are not subject to a universal service discount. Thus, an eligible school or library may assess computer lab fees to help defray the cost of computers or training fees to help cover the cost of training because these purchases are not subsidized by the universal service support mechanisms. We also observe that, if eligible schools, libraries, or consortia amend their approved service contracts to permit another eligible school or library to share the services for which they have already contracted, it would not constitute prohibited resale, as long as the services used are only discounted by the amount to which the eligible entity actually using the services is entitled. 568. We recognize that the prohibition on resale creates some tension with our decision to permit purchasing consortia that include both eligible and ineligible public sector institutions, even though discounts would only apply to services purchased by eligible institutions. On the one hand, we are concerned that permitting eligible and ineligible buyers to commingle their purchases would permit eligible schools and libraries to transfer the use of their discount to ineligible entities in violation of the prohibition on resale. On the other hand, as we explained above, we want to encourage eligible institutions to aggregate their demands with others to enable them to enjoy efficiencies and negotiate favorable arrangements with service providers. As the Senate Working Group stated, the Act "should not hinder or preclude the creative development of consortia among education[al] institutions." Limiting such consortia to include only other K-12 schools and libraries could severely constrain their ability to achieve sufficient demand to attract potential competitors and thereby to negotiate lower rates or at least secure efficiencies, particularly in lower density regions. Permitting schools and libraries to aggregate with other ineligible public sector institutions, including state colleges and universities, state educational broadcasters, and municipalities, could enable the eligible entities to secure lower pre-discount rates, thereby diminishing both their costs and the amount of money required to finance a given percentage discount. In fact, many schools and libraries rely primarily, if not solely, on access to the Internet through networks managed by their states. The difficulty, then, is how to allow eligible institutions to aggregate their demand with ineligible entities while diminishing the likelihood of illegal resale through the extension of discounts to services used by ineligible entities. 569. We concur with the Joint Board's conclusion that, despite the difficulties of allocating costs and preventing abuses, the benefits of permitting schools and libraries to join in consortia with other customers, as discussed above, outweigh the danger that such aggregations will lead to significant abuse of the prohibition against resale. The Joint Board reached this conclusion based on three findings, and we concur with each of them. First, the Joint Board found that the only way to avoid any possible misallocations by eligible schools and libraries would be to limit severely all consortia, even among eligible schools and libraries, because it is possible that consortia including schools and libraries eligible for varying discounts could allocate costs in a way that does not precisely reflect each school's or library's designated discount level. We agree with the Joint Board's conclusion that severely limiting consortia would not be in the public interest because it would serve to impede schools and libraries from becoming attractive customers or from benefiting from efficiencies, such as those secured by state networks. Second, illegal resale, whereby eligible schools and libraries use their discounts to reduce the prices paid by ineligible entities, can be substantially deterred by a rule requiring providers to keep and retain careful records of how they have allocated the costs of shared facilities in order to charge eligible schools and libraries the appropriate amounts. These records should be maintained on some reasonable basis, either established by the Commission or the administrator, and should be available for public inspection. We concur with the Joint Board's conclusion that reasonable approximations of cost allocations should be sufficient to deter significant abuse. Third, we share the Joint Board's expectation that the growing bandwidth requirements of schools and libraries will make it unlikely that other consortia members will be able to rely on using more than their paid share of the use of a facility. This will make fraudulent use of services less likely to occur. We also agree with the Joint Board's recommendation that state commissions should undertake measures to enable consortia of eligible and ineligible public sector entities to aggregate their purchases of telecommunications services and other services being supported through the discount mechanism, in accordance with the requirements set forth in section 254(h). 570. Bona Fide Request for Educational Purposes. Section 254(h)(1)(B) limits discounts to services provided in response to bona fide requests made for services to be used for educational purposes. We concur with the Joint Board's finding that Congress intended to require accountability on the part of schools and libraries and, therefore, we concur with the Joint Board's recommendation and the position of most commenters that eligible schools and libraries be required to: (1) conduct internal assessments of the components necessary to use effectively the discounted services they order; (2) submit a complete description of services they seek so that it may be posted for competing providers to evaluate; and (3) certify to certain criteria under penalty of perjury. 571. Because we find that the needs of educational institutions are complex and substantially different from the needs of other entities eligible for universal service support pursuant to this Order, we will require the administrator, after receiving recommendations submitted by the Department of Education, to select a subcontractor to manage exclusively the application process for eligible schools and libraries, including dissemination and review of applications for service and maintenance of the website on which applications for service will be posted for competitive bidding by carriers. The important criteria in recommending eligible subcontractors are: familiarity with the telecommunications and technology needs of educational institutions and libraries; low administrative costs; and familiarity with the procurement processes of the states and school districts. Moreover, we will consult with the Department of Education in designing the applications for this process. We will require those applications to include, at a minimum, certain information and certifications. 572. First, we will require applications to include a technology inventory/assessment. We expect that, before placing an order for telecommunications or information services, the person authorized to make the purchase for a school or library would need to review what telecommunications-related facilities the school or library already has or plans to acquire. In this regard, applicants must at a minimum provide the following information, to the extent applicable to the services requested:
573. In addition, schools and libraries must prepare specific plans for using these technologies, both over the near term and into the future, and how they plan to integrate the use of these technologies into their curriculum. Therefore, we concur with the Joint Board's finding that it would not be unduly burdensome to require eligible schools and libraries to "do their homework" in terms of preparing these plans. 574. To ensure that these technology plans are based on the reasonable needs and resources of the applicant and are consistent with the goals of the program, we will also require independent approval of an applicant's technology plan, ideally by a state agency that regulates schools or libraries. We understand that many states have already undertaken state technology initiatives, and we expect that more will do so and will be able to certify the technology plans of schools and libraries in their states. Furthermore, plans that have been approved for other purposes, e.g., for participation in federal or state programs such as "Goals 2000" and the Technology Literacy Challenge, will be accepted without need for further independent approval. With regard to schools and libraries with new or otherwise approved plans, we will receive guidance from the Department of Education and the Institute for Museum and Library Services as to alternative approval measures. As noted below, we will also require schools and libraries to certify that they have funds committed for the current funding year to meet their financial obligations set out in their technology plans. 575. Second, we will require the application to describe the services that the schools and libraries seek to purchase in sufficient detail to enable potential providers to formulate bids. Since we agree with the Joint Board's conclusion that Congress intended schools and libraries to avail themselves of the growing competitive marketplace for telecommunications and information services, as discussed above, we concur with the Joint Board's recommendation that schools and libraries be required to obtain services through the use of competitive bidding. Once the subcontractor selected by the administrator receives an application and finds it complete, the subcontractor will post the application, including the description of the services sought on a website for all potential competing service providers to review and submit bids in response, as if they were requests for proposals (RFPs). Moreover, while schools and libraries may submit formal and detailed RFPs to be posted, particularly if that is required or most consistent with their own state or local acquisition requirements, we will also permit them to submit less formal descriptions of services, provided sufficient detail is included to allow providers to reasonably evaluate the requests and submit bids. As the Joint Board recognized, many schools and libraries are already required by their local government or governing body to prepare detailed descriptions of any purchase they make above a specified dollar amount, and they may be able to use those descriptions for this purpose as well. We emphasize, however, that the submission of a request for posting is in no way intended as a substitute for state, local, or other procurement processes. 576. We will also require that applications posted on the website by the administrator's subcontractor present schools' and libraries' descriptions of services in a way that will enable providers to search among potential customers by zip code, number of students (schools) or patrons (libraries), number of buildings, and other data that the administrator will receive in the applications. We believe that this procedure should enable even potential service providers without direct access to the website to rely on others to conduct searches for them. We also note that schools will submit the percentage of their students eligible for the national school lunch program and libraries will submit the percentage of students eligible for the national school lunch program in the school districts in which they are located to the administrator's subcontractor, in order to enable the administrator to calculate the amount of the applicable discount. This information will also be posted by the administrator on the website to help providers bidding on services to calculate the applicable discounts. 577. Third, we concur with the Joint Board's recommendation that the request for services submitted to the Administrator's subcontractor shall be signed by the person authorized to order telecommunications and other supported services for the school or library, who will certify the following under oath: (1) the school or library is an eligible entity under sections 254(h)(4) and 254(h)(5) and the rules adopted herein; (2) the services requested will be used solely for educational purposes; (3) the services will not be sold, resold, or transferred in consideration for money or any other thing of value; (4) if the services are being purchased as part of an aggregated purchase with other entities, the identities of all co-purchasers and the services or portion of the services being purchased by the school or library; (5) all of the necessary funding in the current funding year has been budgeted and will have been approved to pay for the "non-discount" portion of requested connections and services as well as any necessary hardware, software, and to undertake the necessary staff training required in time to use the services effectively; and (6) they have complied, and will continue to comply, with all applicable state and local procurement processes. 578. We decline to adopt Time Warner's suggestion that we establish guidelines to identify educational purposes in a further effort to prevent fraudulent use of discounted services. Time Warner's concern is addressed by the certification requirements with which schools and libraries must comply and by the potential civil and criminal liability faced by the person authorized to order services for schools and libraries if those services are not used for their intended educational purposes. For example, we may impose a forfeiture penalty under sections 502 and 503(b) of the Act. In addition, the person authorized to order services for schools and libraries may be liable for false statements under Title 18 of the United States Code for such fraud. Although Vermont PSB asks us to reduce these requirements, we conclude that they are reasonable and not unnecessarily burdensome. 579. We conclude that, to permit all interested parties to respond to those posted requests, schools, libraries, and consortia including such entities should be required to wait four weeks after a description of the services they seek has been posted on the school and library website, before they sign any binding contracts for discounted services. Once they have signed a contract for discounted services, the school, library, or consortium including such entities shall send a copy of that contract to the administrator's subcontractor with an estimate of the funds that it expects to need for the current funding year as well what it estimates it will request for the following funding year. Assuming that there are sufficient funds remaining to be committed, the subcontractor shall commit the necessary funds for the future use of the particular requestor and notify the requestor that its funding has been approved. 580. Once the school, library, or consortium including such entities has received approval of its purchase order, it may notify the provider to begin service, and once the former has received service from the provider it must notify the administrator to approve the flow of universal service support funds to the provider. 581. Auditing. We agree with the Joint Board recommendation that schools and libraries, as well as carriers, be required to maintain appropriate records necessary to assist in future audits. We share the Joint Board's expectation that schools and libraries will be able to produce such records at the request of any auditor appointed by a state education department, the fund administrator, or any other state or federal agency with jurisdiction that might, for example, suspect fraud or other illegal conduct, or merely be conducting a routine, random audit. We also agree with the Joint Board's recommendation and Vanguard's comments that eligibility for support be conditioned on schools' and libraries' consent to cooperate in future random compliance audits to ensure that the services are being used appropriately. The Commission, in consultation with the Department of Education, will engage and direct an independent auditor to conduct such random audits of schools and libraries as may be necessary. Such information will permit the Commission to determine whether universal service support policies require adjustment. We reject TCI's proposal for more formal annual reports as unnecessarily burdensome, given the likely costs of such reports. 582. Annual Carrier Notification Requirement. We agree with the Joint Board's recommendation and decline to impose a requirement that carriers annually notify schools and libraries about the availability of discounted services. As the Joint Board noted, many national representatives of school and library groups are participating in this proceeding, and we believe that these associations will inform their members of the opportunity to secure discounted telecommunications and other covered services under this program. For example, EDLINC alone represents more than two dozen educational associations. We encourage these groups to notify their members of the universal service programs through trade publications, websites, and conventions. In this regard, we note that the Commission has already participated in numerous outreach efforts aimed at disseminating information on the availability of universal service and support to schools and libraries. We also expect that providers of telecommunications services, Internet access, and internal connections will market to schools and libraries. Thus, while we concur with the Joint Board and decline to require provider notification to schools and libraries, we encourage service providers to notify each school and library association and state department of education in the states they serve of the availability of discounted services annually.
Go to Section E. Funding Mechanisms for Schools and Libraries.
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