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.

F.  Access to Advanced Telecommunications and Information Services

1. Background

587. Section 254(h)(2)(A) 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 for all public and nonprofit elementary and secondary school classrooms . . . and libraries." Section 254(h)(2)(B) directs the Commission to establish "competitively neutral rules" to "define the circumstances under which a telecommunications carrier may be required to connect its network to such public institutional telecommunications users." Access to advanced telecommunications services is also included within the six universal service principles established in section 254(b). Section 254(b)(6), captioned, "Access to Advanced Telecommunications Services for Schools, Health Care, and Libraries," states that "[e]lementary and secondary schools and classrooms, . . . and libraries should have access to advanced telecommunications services as described in subsection [254] (h)."

588. As discussed above, the Joint Board recommended that the Commission provide universal service support to schools and libraries for telecommunications services, Internet access, and internal connections. The Joint Board concluded that its recommendations for providing universal service support under section 254(h) would significantly increase the availability and deployment of telecommunications and information services for school classrooms and libraries, and found that additional steps were not needed to meet Congress's goal of enhancing access to advanced telecommunications and information services.

2. Discussion

589. As discussed above, we concur with the Joint Board's recommendation that we provide universal service support to eligible schools and libraries for telecommunications services, Internet access, and internal connections. We have, however, relied on sections 254(c)(3) and 254(h)(1)(B), rather than sections 254(h)(2)(A) as proposed by the Joint Board, because we believe the former are the more pertinent sections. In addition to the support for such services provided by telecommunications carriers under section 254(c)(3) and (h)(1)(B), discussed in sections X.B.2.b. and X.B.2.c. above, we also agree with the Joint Board's recommendation to provide discounts for Internet access and internal connections provided by non-telecommunications carriers, which we do under the authority of sections 254(h)(2)(A) and 4(i).

590. Many companies that are not themselves telecommunications carriers will be eligible to provide supported non-telecommunications services to eligible schools and libraries at a discount pursuant to section 254(h)(1) because they have subsidiaries or affiliates owned or controlled by them that are telecommunications carriers. In addition, to take advantage of the discounts provided by section 254(h)(1), non-telecommunications carriers can bid with telecommunications carriers through joint ventures, partnerships, or other business arrangements. They also have the option of establishing subsidiaries or affiliates owned or controlled by them that are telecommunications carriers, even if the scope of their telecommunications service activities is fairly limited. Given the ways in which non-telecommunications carriers can be reimbursed for providing discounts to eligible schools and libraries under section 254(h)(1), we conclude that it would create an artificial distinction to exclude those non-telecommunications carriers that do not have telecommunications carrier subsidiaries or affiliates owned or controlled by them, that choose not to create them, or that do not bid together with telecommunications carriers. This distinction is particularly problematic in light of the fact that, as discussed below, explicitly including non-telecommunications carriers, rather than requiring them to participate through subsidiaries, affiliates, or joint ventures, would further serve our competitive neutrality goal. Accordingly, pursuant to authority in sections 254(h)(2)(A) and 4(i) of the Act, non-telecommunications carriers will be eligible to provide the supported non-telecommunications services to schools and libraries at a discount.

591. Section 254(h)(2), in conjunction with Section 4(i), authorizes the Commission to establish discounts and funding mechanisms for advanced services provided by non-telecommunications carriers, in addition to the funding mechanisms for telecommunications carriers created pursuant to sections 254(c)(3) and 254(h)(1)(B). The language of section 254(h)(2) grants the Commission broad authority to enhance access to advanced telecommunications and information services, constrained only by the concepts of competitive neutrality, technical feasibility, and economical reasonableness. Thus, discounts and funding mechanisms that are competitively neutral, technically feasible, and economically reasonable that enhance access to advanced telecommunications and information services fall within the broad authority of section 254(h)(2).

592. Furthermore, unlike section 254(h)(1)(A) and (B), section 254(h)(2)(A) does not limit support to telecommunications carriers. Rather, section 254(h)(2)(A) supplements the discounts to telecommunications carriers established by section 254(h)(1) by expressly granting the Commission the authority and directing the Commission to "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." This language is notably broader than the other provisions of section 254, including sections 254(h)(1)(A) and (1)(B) and, unlike these other sections, does not include the phrase "telecommunications carriers." Thus, contrary to arguments raised by many ILECs, we conclude that section 254(e), which provides that "only an eligible telecommunications carrier designated under section 214(e) shall be eligible to receive specific [f]ederal universal service support," is inapplicable to section 254(h)(2).

593. In this regard, section 254(e) limits the provision of federal universal service support to eligible telecommunications carriers designated under section 214(e). Section 214(e) requires "eligible telecommunications carriers" to "offer the services that are supported by [f]ederal universal service support mechanisms under section 254(c)." With respect to schools and libraries, the discount mechanism for those services designated for support under section 254(c) (specifically (c)(3)), is established by section 254(h)(1)(B). This statutory interrelationship demonstrates that the limitation set forth in section 254(e) pertains only to section 254(c) services, which, with respect to schools and libraries, is only relevant to section 254(h)(1)(B). This interpretation is further bolstered by the specific language set forth in section 254(h)(1)(B)(ii), which is an express exemption from the section 254(e) requirement for certain telecommunications carriers (i.e., those that are not "eligible" under section 214(e)). No such exemption language was required for section 254(h)(2)(A) because section 254(e) does not apply to that subsection.

594. We thus find that section 254(h)(2), in conjunction with section 4(i), permits us to empower schools and libraries to take the fullest advantage of competition to select the most cost-effective provider of Internet access and internal connections, in addition to telecommunications services, and allows us not to require schools and libraries to procure these supported services only as a bundled package with telecommunications services. This approach is consistent with the requirement in section 254(h)(2) that the rules established under it be "competitively neutral," as well as by the principle of competitive neutrality that we have concluded should be among those overarching principles shaping our universal service policies. The goal of competitive neutrality would not be fully achieved if the Commission only provided support for non-telecommunications services such as Internet access and internal connections when provided by telecommunications carriers. In that situation, service providers not eligible for support because they are not telecommunications carriers would be at a disadvantage in competing to provide these services to schools and libraries, even if their services would be more cost-efficient.

595. Moreover, interpreting section 254(e) to deny schools and libraries access to discounted offerings from Internet service providers and providers of internal connections that are not telecommunications carriers would be inconsistent with the purpose of section 254(h)(2)(A). Limiting support to telecommunications carriers would reduce the sources from which schools and libraries could obtain discounted Internet access and internal connections, which would reduce competitive pressures on providers to cut their costs and prices and thus could lead to unnecessarily high pre-discount prices. We conclude that Congress intended that schools and libraries secure the most cost-effective, readily available Internet access and internal connections through vigorous competition among all service providers.

596. Further support for our conclusion can be found by comparing section 254(h)(1)(A), which applies only to "any public or nonprofit health care provider that serves persons who reside in rural areas in that State," with section 254(h)(2), which applies to all health care providers. This difference in wording reinforces our conclusion that the charter section 254(h)(2) gives the Commission to "enhance access" to advanced information services encompasses more than the discount-setting obligations and support mechanisms provided to telecommunications carriers under subsection (h)(1). Indeed, in this regard, we note that sections 254(h)(2)(A) and 4(i) serve as an independent basis of authority for the rules adopted pursuant to sections 254(c)(3) and 254(h)(1)(B). For example, as some parties argue, to the extent internal connections are viewed as facilities rather than services, we have independent jurisdiction to include them in our discount program under authority of sections 254(h)(2)(A) and 4(i).

597. We also reject the argument that providing support to non-telecommunications carriers would violate the competitive neutrality requirement of section 254(h)(2)(A) because non-telecommunications carriers could benefit from universal service support but only telecommunications carriers would be required to contribute to that support. In section XIII below, we conclude that contribution obligations will be based on revenues from telecommunications. Neither telecommunications carriers nor non-telecommunications carriers will be required, however, to contribute to federal universal service support mechanisms based on their provision of Internet access and non-telecommunications internal connections. Thus, telecommunications carriers' contributions will not place them at a competitive disadvantage as providers of supported non-telecommunications services. Permitting both telecommunications carriers and non-telecommunications carriers to collect universal service support based on discounts afforded to eligible schools and libraries on Internet access and internal connections, therefore, meets the competitive neutrality requirement of section 254(h)(2)(A).

598. We also reject the argument advanced by some commenters that providing support for non-telecommunications carriers would violate the Origination Clause of the United States Constitution, which states that all bills for raising revenue must originate in the House of Representatives. These parties assert that, because section 254 originated in the Senate, requiring telecommunications carriers to contribute to universal service support mechanisms from which non-contributors can draw violates the Origination Clause. This argument fails, however, because the fact that the statute allows discounts to be provided to schools and libraries for services provided by non-telecommunications carriers does not convert this valid statute into a revenue-raising measure within the meaning of the Origination Clause. The D.C. Circuit has held that "a regulation is a tax only when its primary purpose judged in legal context is raising revenue." The purpose of section 254(h)(2)(A), however, is to enhance access of schools and libraries to advanced telecommunications and information services, not to raise general revenues. We conclude, therefore, that the schools and libraries program does not violate the Origination Clause.

599. We thus conclude that the same non-telecommunications services eligible for discounts if provided by telecommunications carriers under section 254(h)(1)(B) are eligible for discounts if provided by non-telecommunications carriers under section 254(h)(2)(A). Furthermore, though the rules called for by section 254(h)(2)(A) are not required to mirror the discount schedule in section 254(h)(1)(B), we have authority to "enhance access" in this manner. Thus, the requirements that apply to the discount program for services provided by telecommunications carriers, discussed throughout this section, will apply to the discount program for services provided by non-telecommunications carriers, with one exception. Non-telecommunications carriers that are not required to contribute to universal service support mechanisms will be entitled only to reimbursement for the amount of the discount afforded to eligible schools and libraries under section 254(h)(1)(B), whereas telecommunications carriers will be entitled to either reimbursement or an offset to their obligation to contribute to universal service support mechanisms. Finally, we conclude that although sections 254(c)(3) and 254(h)(1)(B) on the one hand and sections 254(h)(2)(A) and 4(i) on the other hand authorize funding mechanisms under separate statutory authority, these funds can and should be combined into a single fund as a matter of administrative convenience.

600. New York DOE asserts that the Joint Board's recommendation provides no assurances that schools will take advantage of the discounts available under section 254(h)(2) to purchase advanced services rather than simply seeking discounts on the telecommunications services that they currently order. We note that POTS lines can be used to access sophisticated information services. We also agree, however, with the Joint Board's conclusion that our actions providing universal service support under section 254(h) will significantly increase the availability and deployment of telecommunications and information services for school classrooms and libraries. We find that the many requests from commenters that we include access to services using high capacity, including T-1 and T-3 lines, or functionalities such as video conferencing for distance learning, confirm that demand for these services actually exists. We also concur with the Joint Board's finding that additional steps are not needed at this time to meet Congress's goal of enhancing access to advanced telecommunications and information services, other than those taken here. Given the discounts available to schools and libraries and their recognition of the importance of providing students with the technological literacy they will need to survive in an information society, we agree with the Joint Board's reasoning and conclude that our action will promote access to advanced telecommunications services.

Go To Section G. Sections 706 and 708 of the 1996 Act.