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Universal Service:
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Table Of Contents
Universal Service Background
Schools and Libraries
Eligibility
Available Services and Infrastructure
Calculating the Discount
Classifying Urban And Rural Locations
Schools and Libraries Fund Status
Rural Health Care Providers
Eligibility
Available Services and Infrastructure
Rural Health Care Provider Fund Status
WGA Position on Schools, Libraries and Rural Health Care Funds
Helpful Web Site Addresses
Appendices
July 10, 1998 WGA Letter to Congress on Universal Service
WGA Resolution 98-025, "Telemedicine in the West"
Universal Service Background
The Telecommunications Act of 1996 (the "Act") became law on February 8, 1996. The Act extensively amends for the first time the Communications Act of 1934 to create a legal structure designed generally to facilitate competitive entry into communications companies and services and reduce government regulation. The Act also grants the Federal Communications Commission (FCC) and state regulatory commissions important authority to implement the new law, and to write new regulations. The Act expressly provides for new rules to promote universal service and educational telecommunications that, in the opinion of Congress, would not be achieved by a totally unregulated communications industry.
The Act directs the FCC and the states to take the steps necessary to establish universal service support mechanisms to ensure the delivery of affordable telecommunications services to all Americans. All providers of telecommunications services are enlisted to contribute to federal universal service in an equitable and nondiscriminatory manner. The Act codifies long-standing federal rules and policies designed to make basic telephone service affordable throughout the nation. And, for the first time, the Act includes schools, libraries and rural health providers among the eligible beneficiaries of the federal universal service support mechanisms. So far, only a few states have implemented their own high-cost funds. Only Texas has actually implemented a fund to lessen telecommunications costs for certain schools, libraries and rural health providers, while a number of other Western states have passed legislation or are in a rule-making process. This paper will detail how the FCC has structured universal service funding for schools, libraries and rural health providers and will report on the current status of those funding mechanisms.
Schools and Libraries
The Universal Service Fund for Schools and Libraries, also know as the "E-rate," was adopted by the FCC in its universal service order of May 7, 1997, with the express purpose of providing affordable access to telecommunications services for all eligible schools and libraries, particularly those in rural and inner-city areas. Initially funded at up to $2.25 billion annually, the E-rate provides discounts of 20 to 90 percent on telecommunications services, Internet access and internal connections. The discount for which schools and libraries are eligible depends on economic need and location; once approved, these beneficiaries apply their discounts to telecommunications services, Internet access and internal connections, then pay the difference out of their own budgets. Funding for the universal service discounts has historically come from the telecommunications industry, and the E-rate is similarly funded.
Eligibility
To be eligible for universal service discounts, the FCC has determined that a school must meet the statutory definitions for elementary or secondary schools 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. Both public and private elementary and secondary schools that meet these criteria will be eligible to receive discounts on eligible services.
Examples of eligible schools include:
- Public schools
- Private schools
- Non-public schools
- Parochial schools
- Area vocational technical schools
- Charter schools
- Intermediate Units
For a library to be eligible for universal service discounts, it must operate as a not-for-profit business and must be eligible for assistance from a state library administrative agency under the Library Services and Technology Act (LSTA). Despite the definition of library in the LSTA, the FCC determined that a library's eligibility for E-rate funding will depend on its funding as an independent entity. "Independent" means that the budget of the library must be completely separate from that of any institution of learning. For example, because institutions of higher education are not eligible for universal service discounts, an academic library will only be eligible if its funding is completely separate from the funding of any institution of higher education. On the other hand, a library within an eligible school will be entitled to receive E-rate services as part of the school.
Examples include:
- Public libraries
- Private libraries, but only if the state in which the library is located determines that the library should be considered a library for purposes of this definition.
- Academic libraries
- Research libraries that:
- make publicly available library services and materials suitable for scholarly research and not otherwise available to the public, and
- are not an integral part of an institution of higher education.
The FCC encourages eligible schools and libraries to aggregate their demand with others to create a consortium with sufficient demand to attract competitors and negotiate lower rates. It is important to note that entities not eligible for universal service discounts will benefit from lower pre-discount prices from such aggregation, but they will not be permitted to gain eligibility for discounts by participating in consortia with those who are eligible. Responsibility is thus on the consortia to keep careful records so that only the eligible entities receive the discounts.
Available Services and Infrastructure
Eligible schools and libraries may purchase all commercially available telecommunications services at discounted prices. Internet access and installation and maintenance of internal connections are also eligible for discounted rates.
Examples include:
- Basic phone service
- Leased data circuits T1, 56 kbs, ISDN lines
- Dial-up Internet access
- Direct Internet connections
- Wireless telecommunications
Eligible internal connections include:
- Wiring
- Routers
- Switches
- Hubs
- Network servers
- Certain networking operating software
- Wireless LANs and Wireline LANs
- Installation & basic maintenance
- Private Branch Exchange (PBX)
Examples of ineligible telecommunications services and internal connections or products/services include:
- Content Services
- Training
- Software
- Personal computers
- FAX machines
- Voice mail
- Modems
- Electrical wiring
- Asbestos removal
- Cable modems
- Codecs
Calculating the Discount
Discounts for eligible schools and libraries are established as a percentage of the pre-discount price. Pre-discount price means the price the service provider agrees to accept as total payment for its telecommunications services.
The discount rate for schools is based on the percentage of students eligible for participation in the national school lunch program and the school's classification as rural or urban. For shared services, school districts applying for discounts on behalf of their individual schools may calculate the district-wide average percentage of eligible students.
The discount for libraries is based on the percentage of students eligible for participation in the national school lunch program in the public school district in which the library is located. Library systems may apply for discounted services on behalf of individual branches by calculating a system-wide percentage.
Classifying Urban And Rural Locations
Schools and libraries located in metropolitan counties, as measured by the Office of Management and Budget's Metropolitan Statistical Area (MSA) method, are designated as urban. Schools and libraries located in non-metropolitan counties, as designated by the MSA method, are considered rural. However, portions of urban metropolitan counties may still be classified as rural if their census block or tract number is identified by the "Goldsmith Modification" table. The Goldsmith Modification identifies those rural areas by census tract numbers within the larger urban metropolitan counties. An MSA list, along with the Goldsmith Modification can be found on the web page of the Schools and Libraries Corporation (www.slcfund.org). This information is also available from the National Exchange Carrier Association (www.neca.org).
Schools and Libraries Fund Status
The FCC made some significant changes to the program in June 1998. These changes were in response to a number of developments including: 1) a critical General Accounting Office report on the costs and structures for administering the funds; 2) announcements by AT&T and MCI that they would place line-items on bills of their residential customers to help recover their annual contributions to universal service; and 3) Congressional pressure. The major changes concern the level of collections during the remainder of 1998 and the first half of 1999, the funding year for the program; the rules of priority among schools and libraries if requests for support exceed the available funding; and, the overall administration of the program.
First, under the new plan, $1.275 billion will be raised for the program in 1998, down from an original maximum of $2.25 billion. Funding collected for schools and libraries will be assessed, therefore, at a rate of 0.0075 - that is, three quarters of one percent of total telecommunications revenues. About 30,000 schools and libraries have applied for about $2.02 billion from the program. The FCC's new funding decision means that fewer than two-thirds of those first year requests will be granted.
Second, the FCC changed the funding year for the E-rate from a calendar year cycle to a fiscal year cycle (July 1 - June 30). This approach will synchronize the schools and libraries support mechanism with the budgetary and planning cycles of most schools and libraries. In order to implement this transition immediately, the first funding cycle was extended by six months. Applications submitted during the initial 75-day filing window and approved for funding will, therefore, be funded through June 30, 1999.
In cases where demand by schools and libraries exceeds the level of funding available, the FCC decided to provide full support for recurring services, such as telecommunications services and Internet access. Any remaining support will be used for internal connections. This support will be provided first to the most disadvantaged schools and libraries (those that qualify for the greatest discounts).
In addition, the FCC decided to subsume the Schools and Library Corporation (SLC) and the Rural Health Care Corporation (RHCC) into the Universal Service Administrative Company (USAC) by January 1999. The USAC will be the single entity responsible for the administration of the universal service support mechanisms for schools, libraries, and rural health care providers. The majority of the members of the boards of directors for the SLC and the RHCC, including representatives of schools and libraries and rural health care providers, also serve on the USAC board of directors. USAC is already responsible for collecting and disbursing funds for the schools, libraries, and rural health care support mechanisms and has put systems in place for this purpose. Finally, the level of compensation for officers and employees of SLC and RHCC was lowered effective July 1, 1998.
Rural Health Care Providers
The May 1997 FCC Order also implemented section 254(h)(1)(A) of the Act. This subsection requires that public and non-profit rural health care providers receive telecommunications services necessary for the provision of health care services at rates comparable to those paid for similar services in urban areas. In addition, this subsection of the Act articulates the principle that health care providers should have access to advanced telecommunications services.
Eligibility
The FCC determined that only public or non-profit health care providers are eligible to receive supported telecommunications services. Eligible health care providers, except those requesting access only to an Internet service provider, must also be located in a rural area. The Act defines "health care providers" as:
1) Post-secondary educational institutions offering health care instruction, teaching
hospitals, and medical schools
2) Community health centers or health centers providing health care to migrants
3) Local health departments or agencies
4) Community mental health centers
5) Not-for-profit hospitals
6) Rural health clinics
7) Consortia of health care providers consisting of one or more of these entities
To determine whether a facility is located in a rural area, a list of eligible areas is available on the Rural Healthcare Corporation (RHCC) Web site.
Available Services and Infrastructure
Telecommunications services that are supported for eligible health care providers include any type of transport service with a bandwidth up to and including 1.544 Mbps that has mileage sensitive or a fixed charge that is different or not incurred by an urban customer.
These services may include:
- T1
- Fractional T1
- ISDN (BRI and PRI)
- Off-premise extension
- Centrex
- Frame relay
- ATM
- Satellite service
- Dedicated private line
Support will be provided for applicable distance-based charges only for the distance between the rural health care provider and the nearest point on the jurisdictional boundary of the nearest large city in the state with a population of 50,000 or more. No support will be available for toll charges, with the exception of support for toll charges incurred by accessing an Internet service provider. The FCC's rules define distance-based charges as mileage-based charges, rather than inter-LATA or toll charges. Special construction and maintenance charges are not eligible for support.
Any health care provider that does not have toll-free access to an Internet service provider available can receive the lesser of $180 in toll charges per month or the toll charges incurred for 30 hours of access to an Internet service provider per month. For this support, the health care provider does not have to be located in a rural area, but must show that it lacks toll-free Internet access and that it is an eligible health care provider.
There is not presently universal service support for infrastructure development. The FCC concluded that it had insufficient information to determine the level of need for infrastructure development or to estimate reliably the costs of supporting it. There was also insufficient information regarding existing federal and state programs already supporting infrastructure development and the extent to which such programs meet current needs. The FCC plans to issue a public notice regarding whether and how to support infrastructure development for public and nonprofit health care providers.
Rural Health Care Provider Fund Status
In June, the FCC directed USAC to collect and disperse no more than $25 million per quarter for the third and fourth quarters of 1998 for the rural health care mechanism. Distribution of support to health care providers will be prorated if demand exceeds the support available for a given funding year. Although the FCC established an annual cap of $400 million for the rural health care mechanism, it has decided to cap its collections for the fund at $100 million this year. As mentioned above, the RHCC is to be subsumed with the Schools and Library Corporation into the Universal Service Administrative Company by January 1999.
The RHCC has received a total of 2,082 applications since it began accepting applications on May 1, 1998. A total of 1,196 have been approved for posting on the web site and another 857 are in various stages of completion. 29 applications have been denied.
The FCC is presently interpreting the Act so that only Eligible Telecom Carriers (ETCs) may receive the subsidy given to rural health care providers. ETCs are so designated by State Public Utility Commissions because they provide the full range of local telecommunications services. In other words, long distance carriers such as AT&T, MCI, and Sprint are not ETCs and, therefore, rural health care providers that use their services to cross Local Access Transport Area boundaries cannot receive universal support for these costs. It is estimated that perhaps 50 percent of existing rural telemedicine service providers use a non-ETC carrier for all or part of their network. The FCC has informally acknowledged that this interpretations is contrary to the intent of the Act, but it believes the issue will be resolved to the satisfaction of rural health care providers in the near term.
WGA Position on Schools, Libraries and Rural Health Care Funds
In response to a request from the governors at their annual meeting in Girdwood, Alaska, a WGA letter signed by Governor Jim Geringer was sent to Senators John McCain and Ernest Hollings and Congressmen Thomas Bliley and John Dingell on July 10, 1998. The letter expressed concern about possible Congressional efforts that would interfere with implementation of the FCC's universal service support program, and it supported the new funding levels established by the FCC as "the best compromise position that can be implemented at this time." A copy of that letter is attached as an appendix to this report.
In addition, at its Girdwood meeting, the WGA adopted resolution 98-025, "Telemedicine in the West." The resolution addresses the telemedicine barrier posed by high telecommunications costs and calls on the FCC and the RHCC to hasten the flow of universal service funds to rural health providers. The resolution also urges the FCC and the Congress to broadly interpret the Act so as not to unnecessarily limit those rural telemedicine providers eligible for universal service support. The resolution is also attached as an appendix to this report.
Helpful Web Site Addresses
Federal Communications Commission
Schools and Libraries Corporation
Rural Healthcare Corporation
National Exchange Carrier Association