X. SCHOOLS AND LIBRARIES

A. Overview

424. For the first time, the 1996 Act includes schools and libraries among the explicit beneficiaries of universal service support. The legislative history indicated that Congress intended to ensure that eligible schools and libraries have affordable access to modern telecommunications and information services that will enable them to provide educational services to all parts of the nation.⁽¹⁰⁸⁶⁾

425. We adopt the Joint Board's recommendation that all eligible schools and libraries⁽¹⁰⁸⁷⁾ should receive discounts of between 20 percent and 90 percent on all telecommunications services, Internet access, and internal connections provided by telecommunications carriers, subject to a $2.25 billion annual cap. We take this action pursuant to section 254(c)(3) and section 254(h)(1)(B) rather than section 254(h)(2)(A) on which the Joint Board relied. We note that the Joint Board did not suggest that these services are not covered by section 254(h)(1)(B), it merely chose to rely on section 254(h)(2). As to installation and maintenance of internal connections, the Joint Board explicitly rejected the argument that these services are ineligible for support under section 254(h)(1) because they are "goods" or "facilities" rather than "services."⁽¹⁰⁸⁸⁾ In addition, any funds that are not disbursed in a given year shall be carried forward and may be disbursed in subsequent years without regard to the cap. We agree with the Joint Board that schools and libraries should have maximum flexibility to purchase the package of services they believe will most effectively meet their communications needs. We also share the Joint Board's preference that we foster competition from non-telecommunications carriers. We, therefore, encourage those providers to enter into partnerships or joint ventures with telecommunications carriers. In addition, pursuant to sections 254(h)(2) and 4(i), we extend support for the provision of discounted services by non-telecommunications carriers, within the overall annual cap mentioned above. We also concur with the Joint Board and conclude that economically disadvantaged schools and libraries, as well as schools and libraries located in high cost areas, shall receive greater discounts to ensure that they have affordable access to supported services. Finally, we agree with the Joint Board's conclusion that schools and libraries should be required to comply with several self-certification requirements, each designed to ensure that only eligible entities receive universal support and that they have adopted plans for securing cost-effective access to and use of all of the services purchased from telecommunications carriers under section 254(h)(1) and non-telecommunications carriers under sections 254(h)(2) and 4(i).

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,"⁽¹⁰⁸⁹⁾ "special" or "additional" services,⁽¹⁰⁹⁰⁾ and access to "advanced telecommunications and information services."⁽¹⁰⁹¹⁾ 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.⁽¹⁰⁹²⁾

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)."⁽¹⁰⁹³⁾ 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."⁽¹⁰⁹⁴⁾ 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.⁽¹⁰⁹⁵⁾ 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."⁽¹⁰⁹⁶⁾

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.⁽¹⁰⁹⁷⁾ 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).⁽¹⁰⁹⁸⁾ 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.⁽¹⁰⁹⁹⁾ Finally, the Joint Board declined to recommend that a discount mechanism for other information services be established at this time.⁽¹¹⁰⁰⁾

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."⁽¹¹⁰¹⁾ 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."⁽¹¹⁰²⁾ 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."⁽¹¹⁰³⁾ 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."⁽¹¹⁰⁴⁾ 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.⁽¹¹⁰⁵⁾ Senator Rockefeller noted that cost was a significant barrier to classrooms having access to the Internet.⁽¹¹⁰⁶⁾ 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.⁽¹¹⁰⁷⁾

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).⁽¹¹⁰⁸⁾ 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.⁽¹¹⁰⁹⁾

2. Discussion

a. Telecommunications Services

431. We adopt the Joint Board's recommendation,⁽¹¹¹⁰⁾ supported by many commenters,⁽¹¹¹¹⁾ 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⁽¹¹¹²⁾ and Netscape asks us to provide greater discounts on higher bandwidth connections to the Internet,⁽¹¹¹³⁾ while the Vermont PSB asks us to set greater discounts for more basic telecommunications services than for Internet access and internal connections.⁽¹¹¹⁴⁾ The contrasting views of New York and Vermont, and those revealed in the Florida PSC survey of 17 states,⁽¹¹¹⁵⁾ 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.⁽¹¹¹⁶⁾ 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.⁽¹¹¹⁷⁾ 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.⁽¹¹¹⁸⁾ Because we will require schools and libraries to pay a portion of the costs of the services they select,⁽¹¹¹⁹⁾ we agree with the Joint Board that, as recognized by most commenters,⁽¹¹²⁰⁾ 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.⁽¹¹²¹⁾

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.⁽¹¹²²⁾ 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.⁽¹¹²³⁾ 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.⁽¹¹²⁴⁾ 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."⁽¹¹²⁵⁾ 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.⁽¹¹²⁶⁾ 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."⁽¹¹²⁷⁾ 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.⁽¹¹²⁸⁾

b. Internet Access

436. Eligible Services. We also follow the Joint Board's recommendation, supported by many commenters,⁽¹¹²⁹⁾ that schools and libraries receive rate discounts from telecommunications carriers for basic "conduit" access to the Internet.⁽¹¹³⁰⁾ 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"⁽¹¹³¹⁾ and section 254(h)(1)(B) authorizes us to fund any section 254(c)(3) services.⁽¹¹³²⁾ The generic universal service definition in section 254(c)(1)⁽¹¹³³⁾ and the rate provision regarding special services for rural health care providers in section 254(h)(1)(A)⁽¹¹³⁴⁾ 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,"⁽¹¹³⁵⁾ while section 254(h)(1)(B) refers to "any of its services";⁽¹¹³⁶⁾ 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.⁽¹¹³⁷⁾ 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.⁽¹¹³⁸⁾ For example, BellSouth maintains that section 254(c)(1) defines universal service as "an evolving level of telecommunications services,"⁽¹¹³⁹⁾ 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).⁽¹¹⁴⁰⁾ 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.⁽¹¹⁴¹⁾ 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."⁽¹¹⁴²⁾ 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),"⁽¹¹⁴³⁾ 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,"⁽¹¹⁴⁴⁾ 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⁽¹¹⁴⁵⁾ and information storage, that are needed to access the Internet, as well as internal connections,⁽¹¹⁴⁶⁾ as "additional services" that section 254(h)(1)(B), through section 254(c)(3), authorizes us to support.⁽¹¹⁴⁷⁾

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.⁽¹¹⁴⁸⁾ 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.⁽¹¹⁴⁹⁾ 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.⁽¹¹⁵⁰⁾ 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.⁽¹¹⁵¹⁾

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.⁽¹¹⁵²⁾ 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,⁽¹¹⁵³⁾ because the schools and libraries discount program we adopt will only become effective in states that set intrastate discounts that match the interstate discounts.⁽¹¹⁵⁴⁾

444. We also offer a more precise definition of what "information services" will be eligible for discounts under this program in response to commenters⁽¹¹⁵⁵⁾ 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.⁽¹¹⁵⁶⁾ We note that Congress described the conduit services we seek to cover in another context in the 1996 Act.⁽¹¹⁵⁷⁾ 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.⁽¹¹⁵⁸⁾ We adopt the descriptions of those services here because we find that they provide the additional clarification of conduit services that commenters request.⁽¹¹⁵⁹⁾ 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].⁽¹¹⁶⁰⁾

As recommended by the Joint Board, other information services, such as voice mail, shall not be eligible for support at this time.⁽¹¹⁶¹⁾

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.⁽¹¹⁶²⁾ 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.⁽¹¹⁶³⁾ 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.⁽¹¹⁶⁴⁾ 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.⁽¹¹⁶⁵⁾ 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).⁽¹¹⁶⁶⁾ 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.⁽¹¹⁶⁷⁾ 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,⁽¹¹⁶⁸⁾ as well as the reasoning numerous commenters offer for supporting that analysis.⁽¹¹⁶⁹⁾ Congress intended that telecommunications and other services be provided directly to classrooms.⁽¹¹⁷⁰⁾ 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. ⁽¹¹⁷¹⁾ 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.⁽¹¹⁷²⁾ 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.⁽¹¹⁷³⁾ 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.⁽¹¹⁷⁴⁾ 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."⁽¹¹⁷⁵⁾ 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.⁽¹¹⁷⁶⁾ 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.⁽¹¹⁷⁷⁾ 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."⁽¹¹⁷⁸⁾ 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.⁽¹¹⁷⁹⁾ 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.⁽¹¹⁸⁰⁾ The existence and popularity of NetDays throughout the nation⁽¹¹⁸¹⁾ demonstrate that providing internal connections is technically feasible. The willingness of individual states to fund installation and maintenance of internal connections⁽¹¹⁸²⁾ is strong evidence that those states consider such expenditures to be economically reasonable in light of the positive educational benefits they should generate.⁽¹¹⁸³⁾

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."⁽¹¹⁸⁴⁾ 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.⁽¹¹⁸⁵⁾

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.⁽¹¹⁸⁶⁾ As the Joint Board also observed,⁽¹¹⁸⁷⁾ 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.⁽¹¹⁸⁸⁾

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,⁽¹¹⁸⁹⁾ 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.⁽¹¹⁹⁰⁾ 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.⁽¹¹⁹¹⁾ 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⁽¹¹⁹²⁾ 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.⁽¹¹⁹³⁾

458. We reject the claims of GTE and Motorola that our program will favor wireline or other telecommunications carriers⁽¹¹⁹⁴⁾ because we are also providing discounts for services provided by wireless carriers. Moreover, in addition to our direct coverage of non-telecommunications carriers below,⁽¹¹⁹⁵⁾ 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,⁽¹¹⁹⁶⁾ 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.⁽¹¹⁹⁷⁾

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.⁽¹¹⁹⁸⁾ 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."⁽¹¹⁹⁹⁾ 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,⁽¹²⁰⁰⁾ and wireless LANs and their installation and basic maintenance because all are needed to switch and route messages within a school or library.⁽¹²⁰¹⁾ 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.⁽¹²⁰²⁾ Consistent with the Joint Board's finding that the installation and maintenance of internal connections are services,⁽¹²⁰³⁾ 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.⁽¹²⁰⁴⁾ 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.⁽¹²⁰⁵⁾ 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.⁽¹²⁰⁶⁾

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.⁽¹²⁰⁷⁾ With respect to wireline internal connections, or inside wiring, we have previously addressed the rights of carriers and customers to carrier-installed inside wiring.⁽¹²⁰⁸⁾ In the Detariffing Recon. Order, we restricted the carriers' ability to interfere with customer access to inside wiring.⁽¹²⁰⁹⁾ 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.⁽¹²¹⁰⁾ 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,⁽¹²¹¹⁾ because that would distort the competitive neutrality supported strongly by both Congress and the Joint Board.⁽¹²¹²⁾

C. Discount Methodology

1. Background

464. Section 254(b)(5) establishes the principle that "[t]here should be specific, predictable and sufficient Federal and State mechanisms to preserve and advance universal service."⁽¹²¹³⁾ Section 254(b)(1) states that "[q]uality services should be available at just, reasonable, and affordable rates."⁽¹²¹⁴⁾ Furthermore, section 254(e) directs that any universal service support "should be explicit and sufficient to achieve the purposes of [section 254]."⁽¹²¹⁵⁾ Any mechanisms we adopt to support discounts on eligible services for schools and libraries must be consistent with these principles.

465. With respect to the support mechanisms designed for universal service to schools and libraries, section 254(h)(1)(B) gives even more specific instruction:

All telecommunications carriers serving a geographic area shall,

upon a bona fide request for any of its services that are within the

definition of universal service under subsection (c)(3), provide such services to elementary schools, secondary schools, and libraries for educational purposes at rates less than the amounts

charged for similar services to other parties. The discount shall be

an amount that the Commission, with respect to interstate services,and the States, with respect to intrastate services, determine is appropriate and necessary to ensure affordable access to and useof such services by such entities.⁽¹²¹⁶⁾

466. Congress emphasized affordability in the Joint Explanatory Statement when it stated 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 that will enable them to provide . . . educational services to all parts of the Nation."⁽¹²¹⁷⁾ In addition, in the floor debates on the Snowe-Rockefeller-Exon-Kerrey amendment, Senator Snowe stated that, under section 254(h)(1)(B), "[b]y changing the basis for the discount from incremental cost to an amount necessary to ensure an affordable rate, the Federal-State joint board in conjunction with the FCC and the States have some flexibility to target discounts based on a community's ability to pay."⁽¹²¹⁸⁾

467. In the Recommended Decision, the Joint Board made several recommendations regarding the discount methodology. First, regarding the pre-discount price, which it defined as the price of services charged to schools and libraries prior to the application of a discount,⁽¹²¹⁹⁾ the Joint Board recommended that schools and libraries be required to seek competitive bids for all services eligible for section 254(h) discounts.⁽¹²²⁰⁾ The Joint Board also recommended that eligible schools and libraries be permitted to aggregate their needs for eligible services with those of both eligible and ineligible entities.⁽¹²²¹⁾

468. Second, the Joint Board recommended that the Commission adopt a matrix that provides discounts from 20 percent to 90 percent, to apply to all telecommunications services, Internet access, and internal connections, with the range of discounts correlated to the indicators of economic disadvantage and high cost for schools and libraries.⁽¹²²²⁾ The Joint Board also recommended that the Commission set an annual cap on spending for schools and libraries of $2.25 billion per year with a trigger mechanism, so that if expenditures in any year reach $2 billion, rules of priority would come into effect.⁽¹²²³⁾

469. Third, the Joint Board recommended that the Commission consider how the cost of providing services varied between geographic areas when setting discounts for schools and libraries.⁽¹²²⁴⁾ The Joint Board suggested that it may be appropriate for the Commission to define high cost areas by considering the unseparated loop costs of the ILEC.⁽¹²²⁵⁾ The Joint Board noted that other methods for determining high cost may also be appropriate and encouraged the Commission to seek additional information and parties' comments on this issue prior to adopting rules.⁽¹²²⁶⁾

470. Fourth, the Joint Board recommended that the Commission provide a greater discount to economically disadvantaged schools and libraries for services within the definition of universal service.⁽¹²²⁷⁾ The Joint Board recommended that the level of economic disadvantage for schools be determined by eligibility for the national school lunch program, or some other appropriate measure.⁽¹²²⁸⁾ Because libraries do not participate in the national school lunch program, the Joint Board recommended that libraries be eligible for greater discounts if they are located in a school district serving economically disadvantaged students, but that the Commission seek additional information and parties' comments on what measures of economic disadvantage may be readily available to identify economically disadvantaged libraries.⁽¹²²⁹⁾

471. Fifth, the Joint Board addressed the relationship between any discount the Commission adopts and existing special rates that schools or libraries may already have negotiated with carriers or secured through state action.⁽¹²³⁰⁾ With regard to special rates mandated by a state, the Joint Board stated that, to the extent a state desires to supplement the discount financed through the federal universal service fund by permitting its schools and libraries to apply the discount to the special low rates, the Commission should fund the state's actions consistent with sections 254(h) and 254(f).⁽¹²³¹⁾ With regard to private contract rates, the Joint Board recommended that the Commission not require any schools or libraries that had secured a low price on service to relinquish that rate simply to secure a slightly lower price produced by including a large amount of federal support.⁽¹²³²⁾

472. Finally, the Joint Board recommended that the Commission adopt a mechanism to fund discounts on both interstate and intrastate services at the levels discussed above, and that a state's setting intrastate discounts at least equal to the discounts on interstate services be a condition of federal universal service support for schools and libraries in that state.⁽¹²³³⁾

2. Discussion

a. Pre-Discount Price

473. In General. As the Joint Board recognized, the pre-discount price is the price of services to schools and libraries prior to the application of a discount.⁽¹²³⁴⁾ That is, the pre-discount price is the total amount that carriers will receive for the services they sell to schools and libraries: the sum of the discounted price paid by a school or library and the discount amount that the carrier can recover from universal service support mechanisms for providing such services.

474. Because we seek to ensure that pre-discount prices are established at the lowest "amounts charged [by providers] for similar services to other parties,"⁽¹²³⁵⁾ we must reject the arguments of EDLINC that we use a nationwide average pre-discount price.⁽¹²³⁶⁾ Using a nationwide average pre-discount price would almost certainly result in forcing providers in higher cost areas to provide service to schools and libraries without being able to recover their costs. In addition, using a nationwide average pre-discount price would permit providers in lower cost areas to recover more than their total cost of providing services to schools and libraries within their service areas.

475. Competitive Environment. As the Joint Board recognized, in a competitive marketplace, schools and libraries will have both the opportunity and the incentive to secure the lowest price charged to similarly situated non-residential customers for similar services, and providers of telecommunications services, Internet access, and internal connections will face competitive pressures to provide that price.⁽¹²³⁷⁾

476. We agree with the Joint Board that we should encourage schools and libraries to aggregate their demand with others to create a consortium with sufficient demand to attract competitors and thereby negotiate lower rates or at least secure efficiencies, particularly in lower density regions.⁽¹²³⁸⁾ We concur with the Joint Board's finding that aggregation into consortia can also promote more efficient shared use of facilities to which each school or library might need access.⁽¹²³⁹⁾ For example, where five nearby schools might each seek use of a 1.5 Mbps link once a week, it might be more efficient for them to share a single 1.5 Mbps connection to a network server than for each school to purchase its own 1.5 Mbps link.

477. Thus, we agree with the Joint Board's objectives in recommending that eligible schools and libraries be permitted to aggregate their telecommunications needs with those of both eligible and ineligible entities, including health care providers and commercial banks, because the benefits from such aggregation outweigh the administrative difficulties.⁽¹²⁴⁰⁾ We are concerned, however, that permitting large private sector firms to join with eligible schools and libraries to seek prices below tariffed rates could compromise both the federal and state policies of non-discriminatory pricing. Thus, although we find congressional support for permitting eligible schools and libraries to secure prices below tariffed rates, we find no basis for extending that exception to enable all private sector firms to secure such prices.

478. For this reason, as described in more detail below, we adopt a slightly modified version of the Joint Board's recommendation. We conclude that eligible schools and libraries will generally qualify for universal service discounts and prices below tariffed rates for interstate services, only if any consortia they join include only other eligible schools and libraries, rural health care providers, and public sector (governmental) customers. Eligible schools and libraries participating in consortia that include ineligible private sector members will not be eligible to receive universal service discounts unless the pre-discount prices of any interstate services that such consortia receive from ILECs are generally tariffed rates. We conclude that this approach satisfies both the purpose and the intent of the Joint Board's recommendation because it should allow the consortia containing eligible schools and libraries to aggregate sufficient demand to influence existing carriers to lower their prices and should promote efficient use of shared facilities. This approach also includes the large state networks upon which many schools and libraries rely for their telecommunications needs among the entities eligible to participate in consortia. We recognize that state laws may differ from federal law with respect to non-discriminatory pricing requirements. We also recognize, however, that should states so choose, they may impose the same structure as detailed herein, on the basis of similar policies at the state level.

479. We agree with the Joint Board that, ideally, eligible schools and libraries will take full advantage of the competitive marketplace and the opportunity to aggregate with others to secure cost-based, pre-discount prices for the services they need.⁽¹²⁴¹⁾ We anticipate that competition to serve eligible schools and libraries will be vigorous in most markets. As NTIA observed to the Joint Board, "the most efficient use of the universal service fund support system should be promoted through the use of market-based techniques wherever possible."⁽¹²⁴²⁾ Schools and libraries may not yet be fully aware of how the 1996 Act is forcing the opening of markets that were previously served by monopolies. For example, many schools and libraries may be unaware of the studies concluding that wireless service providers may offer the best prices to 27 percent of all schools for connecting to the Internet.⁽¹²⁴³⁾ Schools and libraries may also not know that cable systems currently pass more than 90 percent of homes nationwide,⁽¹²⁴⁴⁾ and thus that cable operators may offer to provide telecommunications service or access to the Internet over their networks, particularly where the cable operators have previously installed an institutional network (I-net) to all schools and libraries as part of a local cable television franchise agreement.

480. We, therefore, adopt the Joint Board's finding that fiscal responsibility compels us to require that eligible schools and libraries seek competitive bids for all services eligible for section 254(h) discounts.⁽¹²⁴⁵⁾ Competitive bidding is the most efficient means for ensuring that eligible schools and libraries are informed about all of the choices available to them. Absent competitive bidding, prices charged to schools and libraries may be needlessly high, with the result that fewer eligible schools and libraries would be able to participate in the program or the demand on universal service support mechanisms would be needlessly great. We discuss, in greater detail below, the procedures for undertaking the competitive bidding process.⁽¹²⁴⁶⁾

481. Some commenters ask us to clarify a number of points regarding competitive bidding. First, in response to a number of commenters,⁽¹²⁴⁷⁾ we note that the Joint Board intentionally did not recommend that the Commission require schools and libraries to select the lowest bids offered but rather recommended that the Commission permit schools and libraries "maximum flexibility" to take service quality into account and to choose the offering or offerings that meets their needs "most effectively and efficiently,"⁽¹²⁴⁸⁾ where this is consistent with other procurement rules under which they are obligated to operate.⁽¹²⁴⁹⁾ We concur with this policy, noting only that price should be the primary factor in selecting a bid. When it specifically addressed this issue in the context of Internet access, the Joint Board only recommended that the Commission require schools and libraries to select the most cost-effective supplier of access.⁽¹²⁵⁰⁾ By way of example, we also note that the federal procurement regulations (which are inapplicable here) specify that in addition to price, federal contract administrators may take into account factors including the following: prior experience, including past performance; personnel qualifications, including technical excellence; management capability, including schedule compliance; and environmental objectives.⁽¹²⁵¹⁾ We find that these factors form a reasonable basis on which to evaluate whether an offering is cost-effective.

482. Other commenters suggest that we go beyond the Joint Board's recommendation and require schools to take other actions. For example, Nextel and WinStar ask us to require schools and libraries to require providers to bid on services on an unbundled basis, because a combination of smaller providers may be able to offer them better prices than those who can offer them the entire package.⁽¹²⁵²⁾ Teleport and NCTA ask us to require schools to limit bids to a single round of sealed bids.⁽¹²⁵³⁾ TCI asks that we require vendors to provide their qualifications.⁽¹²⁵⁴⁾ We endorse the objectives that these suggestions seek to achieve; we find, nonetheless, that Commission action is not required because many individual schools and libraries operate under state and local procurement rules designed to achieve those objectives.⁽¹²⁵⁵⁾ Thus, although we do not impose bidding requirements, neither do we exempt eligible schools or libraries from compliance with any state or local procurement rules, such as competitive bidding specifications, with which they must otherwise comply.

483. In response to the concerns of GTE and SBC that existing Commission rules concerning interstate service prevent them from offering rates below their generally available tariffed rates in competitive bidding situations to establish pre-discount rates,⁽¹²⁵⁶⁾ we make the following clarifications. First, our policies on ILEC pricing flexibility apply only to interstate services. The ILECs' abilities to offer intrastate services in competitive bidding situations will be governed by the relevant state public utility commission policies. Second, we find that ILECs will be free under sections 201(b) and 254 to participate in certain competitive bidding opportunities with rates other than those in their generally tariffed offerings. More specifically, they will be free, under section 201(b) of the Act, to offer different rates to consortia that consist solely of governmental entities, eligible health care providers, and schools and libraries eligible for preferential rates under section 254. Thus, we hereby designate communications to organizations, such as schools and libraries and eligible health care providers, eligible for preferential rates under section 254 as a class of communications eligible for different rates, notwithstanding the nondiscrimination requirements of section 202(a). Congress has expressly granted an exemption to section 202(a)'s prohibition against discrimination for these classes of communications.⁽¹²⁵⁷⁾ Thus, ILECs will be free to offer differing, including lower, rates to consortia consisting of section 254-eligible schools and libraries, eligible health care providers, state schools and universities, and state and local governments. These pre-discount rates will be generally available to all eligible members of these classes under tariffs filed with this Commission.⁽¹²⁵⁸⁾ The schools and libraries eligible for discounts under section 254 would then receive the appropriate universal service discount off these rates. Third, ILECs may obtain further freedom to participate in competitive bidding situations as a result of decisions we make in the Access Charge Reform Proceeding. In the Third Report and Order in the Access Charge Reform Proceeding, we will determine whether to permit ILECs to provide targeted offerings in response to competitive bidding situations once certain competitive thresholds are met.⁽¹²⁵⁹⁾ We conclude that this regime, which includes a prohibition against resale of these services, best furthers the explicit congressional directive of providing preferential rates to eligible schools and libraries with a minimum of public interest harm arising from limiting the availability of prediscount rates to these classes.

484. Lowest Price Charged to Similarly Situated Non-Residential Customers for Similar Services. In competitive markets, we anticipate that schools and libraries will be offered competitive, cost-based prices that will match or beat the cost-based prices paid by similarly situated customers for similar services. We concur, however, with the Joint Board that, to ensure that a lack of experience in negotiating in a competitive telecommunications service market does not prevent some schools and libraries from receiving such offers, we should require that a carrier offer services to eligible schools and libraries at prices no higher than the lowest price it charges to similarly situated non-residential customers for similar services (hereinafter "lowest corresponding price").⁽¹²⁶⁰⁾

485. We also adopt the Joint Board's recommendation to use the lowest corresponding price as an upper limit on the price that carriers can charge schools and libraries in non-competitive markets, as well as competitive markets, so that eligible schools and libraries can take advantage of any cost-based rates that other customers may have negotiated with carriers during a period when the market was subject to actual, or even potential, competition.⁽¹²⁶¹⁾ We conclude that requiring providers to charge their lowest corresponding price would impose no unreasonable burden, even on non-dominant carriers,⁽¹²⁶²⁾ because all carriers would be able to receive a remunerative price for their services. We clarify that, for the purpose of determining the lowest corresponding price, similar services would include those provided under contract as well as those provided under tariff.

486. Section 254(h)(1)(B) requires telecommunications carriers to make services available to all schools and libraries in any geographic area the carriers serve.⁽¹²⁶³⁾ We share the Joint Board's concern that, if "geographic area" were interpreted to mean the entire state, any firm providing telecommunications services to any school or library in a state would have to be willing to serve any other school or library in the state.⁽¹²⁶⁴⁾ We also agree with the Joint Board that an expansive interpretation of geographic area might discourage new firms beginning to offer service in one portion of a state from doing so due to concern that they would have to serve all other areas in that state.⁽¹²⁶⁵⁾ For example, electric utilities might be discouraged from offering telecommunications services to schools if there were a requirement that once they had offered service to one school or library system in their state of operation, any other school or library in the state could also demand telecommunications services at rates comparable to those the utility offered to its initial "test" community, even if it were not equipped to offer telecommunications services in those other markets.

487. We concur, therefore, with the Joint Board's recommendation that geographic area (hereinafter referred to as geographic service area) be defined as the area in which a telecommunications carrier is seeking to serve customers with any of its services covered by section 254(h)(1)(B).⁽¹²⁶⁶⁾ We do not limit here the area in which a telecommunications carrier or a subsidiary or affiliate owned or controlled by it can choose to provide service.⁽¹²⁶⁷⁾ We also agree with the Joint Board that telecommunications carriers be required to offer schools and libraries services at their lowest corresponding prices throughout their geographic service areas.⁽¹²⁶⁸⁾ Moreover, we agree with the Joint Board's recommendation that, as a condition of receiving support, carriers be required to certify that the price they offer to schools and libraries is no greater than the lowest corresponding price based on the prices the carrier has previously charged or is currently charging in the market.⁽¹²⁶⁹⁾ This obligation would extend, for example, to competitive LECs, wireless carriers, or cable companies, to the extent that they offer telecommunications for a fee to the public.⁽¹²⁷⁰⁾ We share the Joint Board's conclusion that Congress intended schools and libraries to receive the services they need from the most efficient provider of those services.⁽¹²⁷¹⁾

488. We clarify that a provider of telecommunications services, Internet access, and internal connections need not offer the same lowest corresponding price to different schools and libraries in the same geographic service area if they are not similarly situated and subscribing to a similar set of services.⁽¹²⁷²⁾ Providers may not avoid the obligation to offer the lowest corresponding price to schools and libraries for interstate services, however, by arguing that none of their non-residential customers are identically situated to a school or library or that none of their service contracts cover services identical to those sought by a school or library. Rather, we will only permit providers to offer schools and libraries prices above the prices charged to other similarly situated customers when those providers can show that they face demonstrably and significantly higher costs to serve the school or library seeking service. EDLINC asks us to prohibit carriers from distinguishing among customers based on anything other than traffic volumes in comparing costs.⁽¹²⁷³⁾ We decline to adopt this approach because we find it reasonable for rates to reflect any factors that clearly and significantly affect the cost of service, including mileage from switching facility and length of contract. We would expect state commissions to employ these same standards when evaluating differences between customers of intrastate services.

489. If the services sought by a school or library include significantly lower traffic volumes or their provision is significantly different from that of another customer with respect to any other factor that the state public service commission has recognized as being a significant cost factor, then the provider will be able to adjust its price above the level charged to the other customer to recover the additional cost incurred so that it is able to recover a compensatory pre-discount price. We also recognize that costs change over time and thus, as PacTel and USTA observe, compensatory rates would not necessarily result if a provider were required to charge the same price it had charged many years ago.⁽¹²⁷⁴⁾ We will establish a rebuttable presumption that rates offered within the previous three years are still compensatory. As Citizens Utilities recognizes, we also would not require a provider to match a price it offered to a customer who is receiving a special regulatory subsidy or that appeared in a contract negotiated under very different conditions, if that would force the provider to offer services at a rate below Total-Service Long-Run Incremental Cost (TSLRIC).⁽¹²⁷⁵⁾

490. We also adopt the Joint Board's recommendation that, if they believe that the lowest corresponding price is unfairly high or low, schools, libraries, and carriers should be permitted to seek recourse from the Commission, regarding interstate rates, and from state commissions, regarding intrastate rates.⁽¹²⁷⁶⁾ Eligible schools and libraries may request a lower rate if they believe the rate offered by the carrier is not the lowest corresponding price. Carriers may request higher rates if they believe that the lowest corresponding price is not compensatory. We find that permitting eligible schools and libraries to seek such recourse permits sufficient flexibility to address U S West's concern that establishing the lowest corresponding price may sometimes be difficult.⁽¹²⁷⁷⁾

491. We reject MCI's proposal that we set the lowest corresponding price based on TSLRIC.⁽¹²⁷⁸⁾ We agree with the Joint Board's analysis that using TSLRIC would not be practical, given the limited resources of schools and libraries to participate in lengthy negotiations, arbitration, or litigation.⁽¹²⁷⁹⁾ We also clarify that PacTel is correct that the tariffed rate would represent a carrier's lowest corresponding price in a geographic area in which that carrier has not negotiated rates that differ from the tariffed rate, and that we are not requiring carriers to file new tariffs to reflect the discounts we adopt here for schools and libraries.⁽¹²⁸⁰⁾ EDLINC asserts that tariffed rates in non-competitive markets may treat customers in non-competitive markets unfairly because non-competitive markets are more likely to be the most costly markets to serve.⁽¹²⁸¹⁾ We find, however, that customers in higher cost markets served by large ILECs are likely to benefit already from geographically averaged tariffed rates.

b. Discounts

492. The Act requires the Commission, with respect to interstate services, and the states, with respect to intrastate services, to establish a discount on designated services provided to eligible schools and libraries. Pursuant to section 254(h)(1)(B), the discount must be an amount that is "appropriate and necessary to ensure affordable access to and use of" the services pursuant to section 254(c)(3).⁽¹²⁸²⁾ The discount must take into account the principle set forth in section 254(b)(5) and mandated in section 254(d) that the federal universal service support mechanisms must be "specific, predictable, and sufficient.⁽¹²⁸³⁾ We agree with the Joint Board's recommendation that we adopt a percentage discount mechanism, adjusted for schools and libraries that are defined as economically disadvantaged and those schools and libraries located in areas facing particularly high prices for telecommunications service.⁽¹²⁸⁴⁾ In particular, we concur with the Joint Board's recommendation that we adopt discounts from 20 percent to 90 percent for all telecommunications services, Internet access, and internal connections, with the range of discounts correlated to indicators of economic disadvantage and high prices for schools and libraries.⁽¹²⁸⁵⁾

493. We agree with the Joint Board's recommendation that we adopt rules that provide support to eligible schools and libraries through a percentage discount mechanism rather than providing a package of free services or block grants to states because we find that discounts would better assure efficiency and accountability.⁽¹²⁸⁶⁾ Requiring schools and libraries to pay a share of the cost should encourage them to avoid unnecessary and wasteful expenditures because they will be unlikely to commit their own funds for purchases that they cannot use effectively. A percentage discount also encourages schools and libraries to seek the best pre-discount price and to make informed, knowledgeable choices among their options, thereby building in effective fiscal constraints on the discount fund. We find that this approach is consistent with many state and local requirements because such requirements generally require schools and libraries to seek competitive bids for procurements above a specified minimum level.⁽¹²⁸⁷⁾

494. Discounts in High Cost Areas. We also adopt the Joint Board's recommendation that, to make service more affordable to schools and libraries, we offer greater support to those located in high cost areas than to those in low cost areas.⁽¹²⁸⁸⁾ We reject, however, arguments advanced by ALA and EDLINC that the discount matrix recommended by the Joint Board does not adequately acknowledge the substantial disparity between telecommunications prices in different locations.⁽¹²⁸⁹⁾ Although the discount matrix we adopt does not make the prices schools and libraries pay for telecommunications services in high and low cost areas identical, we find that the matrix distributes substantially more funds, particularly on a per-capita basis, to reduce prices paid by schools and libraries in areas with higher telecommunications prices than they do to reduce prices in areas in which such prices are already relatively low. The greater price reduction in terms of total dollar amounts for schools and libraries in high cost areas results primarily because the discount rates are based on percentages that lead proportionally to more funds flowing to those schools and libraries facing proportionally higher prices.⁽¹²⁹⁰⁾

495. This principle can be illustrated using an example provided by EDLINC.⁽¹²⁹¹⁾ In that example, one school in the state of Washington faces undiscounted monthly T-1 charges of $125.00 per month, while a similar school elsewhere in the state faces undiscounted monthly T-1 charges of $2100.00 per month. Assuming that both are eligible for a 90 percent discount, the school facing relatively low prices would receive 0.9 x $125.00 = $112.50 in support, while the school facing relatively high prices would receive 0.9 x $2100.00 = $1890.00 in support. Thus, considering the total dollar amount of support, the school located in the high cost area receives almost 17 times as much support as the school located in the low cost area. In addition, the average number of students in schools in low cost, urban areas exceeds the number in high cost, rural areas.⁽¹²⁹²⁾ In fact, the per-capita support figures show that students in high cost rural schools, like the ones in the EDLINC example, would receive 23 times as much support per student as those in the low cost school. Thus, while this high cost school's monthly charges are reduced to $210.00 per month, compared to the $12.50 per month paid by the low cost school, the support per student that the high cost school would receive would be 23 times that received by the low cost school.

496. Although the discount mechanism we adopt does not equalize prices in all areas nationwide, it makes telecommunications service in the areas with relatively high prices substantially more affordable to the schools and libraries in those areas. We find that a mechanism that may provide as much as 23 times more support per capita to a school or library in a high cost area than it does to one in a low cost area is providing substantially more of a discount to the former. We also note that some eligible schools and libraries in high cost areas will benefit, at least temporarily, from the high cost assistance that eligible telecommunications carriers serving them will receive. Although high cost support will only be targeted to a limited number of services, none of which are advanced telecommunications and information services,⁽¹²⁹³⁾ many schools and libraries will connect to the Internet via voice-grade access to the PSTN. Furthermore, whereas the Joint Board presumed that such support would only be targeted to residential and single-line businesses,⁽¹²⁹⁴⁾ in the short term, our decision diverges from that result and permits support for multiline businesses.⁽¹²⁹⁵⁾ We agree with the Joint Board that this position on support for schools and libraries in high cost areas is consistent with our other goal of providing adequate support to disadvantaged schools while keeping the size of the total support fund no larger than necessary to achieve this goal.⁽¹²⁹⁶⁾ The Joint Board recommended, and we agree, that the nominal percentage discount levels should be more sensitive to how disadvantaged a school or library is than whether it is located in a high cost service area.⁽¹²⁹⁷⁾ We conclude, therefore, that the additional support for schools and libraries in high cost areas provided in the matrix we adopt⁽¹²⁹⁸⁾ is "appropriate and necessary to ensure affordable access" to schools and libraries as directed by section 254(h)(1)(B).⁽¹²⁹⁹⁾

497. Discounts for Economically Disadvantaged Schools and Libraries. We adopt the Joint Board's recommendation that we establish substantially greater discounts for the most economically disadvantaged schools and libraries.⁽¹³⁰⁰⁾ We recognize that such discounts are essential if we are to make advanced technologies equally accessible to all schools and libraries. We agree, however, with the Joint Board⁽¹³⁰¹⁾ and several commenters⁽¹³⁰²⁾ that not even the most disadvantaged schools or libraries should receive a 100 percent discount. We recognize that even a 90 percent discount -- and thus a 10 percent co-payment requirement -- might create an impossible hurdle for disadvantaged schools and libraries that are unable to allocate any of their own funds toward the purchase of eligible discounted services, and thus could increase the resource disparity among schools.⁽¹³⁰³⁾ We conclude, however, that even if we were to exempt the poorest schools from any co-payment requirement for telecommunications services, a 100 percent discount would not have a dramatically greater impact on access than would a 90 percent discount, because we are not providing discounts on the costs of the additional resources, including computers, software, training, and maintenance, which constitute more than 80 percent of the cost of connecting schools to the information superhighway.⁽¹³⁰⁴⁾ We share the Joint Board's belief that the discount program must be structured to maximize the opportunity for its cost-effective operation, and that, for the reasons noted above, requiring a minimal co-payment by all schools and libraries will help realize that goal.⁽¹³⁰⁵⁾

498. Discount Matrix. The Joint Board considered the approximate size of the fund resulting from a matrix assigning discounts to a school or library based upon its level of economic disadvantage and its location. After substantial deliberation, the Joint Board recommended the following matrix of percentage discounts:

499. In fashioning a discount matrix, the Joint Board sought to ensure that the greatest discounts would go to the most economically disadvantaged schools and libraries, with an equitable progression of discounts being applied to the other categories within the parameters of 20 percent to 90 percent discounts.⁽¹³⁰⁶⁾ We find that the proposed matrix, subject to minor modifications, achieves these goals. We will discuss those modifications and the matrix we adopt in more detail below.⁽¹³⁰⁷⁾

500. We further find that the matrix we adopt below satisfies the directive of section 254(h)(1)(B) that we establish a discount that is "appropriate and necessary to ensure affordable access to and use of such services by such entities."⁽¹³⁰⁸⁾ Given that no school or library could afford access without also having the resources to purchase computers and software and train teachers or librarians, we find that no dollar figure or percentage discount can make access "affordable" in any absolute sense. Nor do we interpret section 254(h)(1)(B) as requiring us to discern such absolute figures or percentages. Rather, we conclude that the Joint Board correctly established its recommended percentages based on a careful balancing of the costs and benefits of providing those levels of support. Accordingly, we reject the suggestion that the Joint Board failed to meet a statutory obligation to demonstrate that these recommended percentages are based on some objective, quantifiable measure of affordability.⁽¹³⁰⁹⁾

c. Identifying High Price Areas

501. Recognizing that schools and libraries in high cost areas⁽¹³¹⁰⁾ will confront relatively higher barriers to connecting to the Internet and maintaining other communications links, the Joint Board proposed a discount matrix that granted schools and libraries located in higher cost areas greater percentage discounts.⁽¹³¹¹⁾ Although its discount matrix used low, mid, and high cost categories based on embedded cost ARMIS data of carriers,⁽¹³¹²⁾ the Joint Board did not recommend a way to identify those schools and libraries facing higher costs, except to suggest that we might consider the unseparated loop costs collected under ARMIS.⁽¹³¹³⁾ The Joint Board understood that, because such embedded cost data were already maintained by the Commission, it would be relatively easy to set thresholds that would divide areas into high and low cost based on the cost data of the ILEC serving the area. The Joint Board also recognized that unseparated loop costs were a good proxy for local service prices.

502. The Joint Board suggested that other methods for determining high cost might be appropriate and encouraged the Commission to seek additional comment on the issue,⁽¹³¹⁴⁾ which we did in the Recommended Decision Public Notice.⁽¹³¹⁵⁾ As a result, we have considered several alternative methods, which were not before the Joint Board at the time of its deliberations. These methods include the use of cost data generated by the forward-looking cost methodologies that proponents have filed for use in determining support for high cost areas;⁽¹³¹⁶⁾ density pricing zones; availability of advanced services;⁽¹³¹⁷⁾ tariffed T-1 prices for connections to an Internet service provider;⁽¹³¹⁸⁾ and whether schools and libraries are located in rural or urban areas.⁽¹³¹⁹⁾ For the reasons discussed below, we conclude that we will classify eligible schools and libraries as high or low cost depending on whether they are located in a rural or an urban area, respectively.

503. Each of the alternatives presented by the commenters for predicting whether schools and libraries will face high prices possesses flaws. For example, while unseparated ARMIS loop costs may often accurately predict local rates outside of high cost areas, they would not reflect whether subscribers must pay toll rates or transport mileage charges to reach an Internet service provider, two factors that significantly influence the actual costs facing schools and libraries seeking connection to the Internet. Density pricing zones⁽¹³²⁰⁾ and two-part classification approaches such as urban/rural⁽¹³²¹⁾ and premium/non-premium rates based on availability of advanced services⁽¹³²²⁾ also fail to account for the toll rates and transport mileage charges that high cost subscribers may need to pay to reach an Internet service provider. Using the unseparated loop costs generated by a forward-looking cost methodology suffers from the same deficiencies as the ARMIS cost data and also ignores the averaging of local rates commonly mandated by state regulators. Using the retail price of a T-1 circuit linking a school or library to the nearest point of presence of the most cost-effective Internet service provider has the apparent advantage of being based on the actual prices that schools and libraries pay⁽¹³²³⁾ and reflects all distance-sensitive charges that a school or library would face. We must reject this approach, however, for two reasons. The relative level of T-1 rates may not reflect the relative price for services other than 1.5 Mbps service. More significantly, there is no record in this proceeding regarding what benchmarks of T-1 circuit prices we could use to divide schools and libraries into appropriate cost categories.

504. Given this set of reasonable but imperfect approaches to determining high cost for schools and libraries, we conclude that we should select the classification system that is least burdensome to schools, libraries, and carriers. We will therefore identify high cost schools and libraries as those located in rural, as opposed to urban, areas. After careful consideration, we conclude that identifying whether a school or library is located in a rural or urban area is a relatively easy method for schools and libraries to use, reasonably matches institutions facing the highest prices for telecommunications services with the highest discounts, and imposes no burden on carriers. Adoption of this approach is also consistent with the Joint Board's intention that the method selected for determining high cost should calibrate the cost of service in a "reasonable, practical, and minimally burdensome manner."⁽¹³²⁴⁾ We also conclude that, for purposes of the schools and libraries discount program, rural areas should be defined in accordance with the definition adopted by the Department of Health and Human Services' Office of Rural Health Policy (ORHP/HHS). ORHP/HHS uses the Office of Management and Budget's (OMB) Metropolitan Statistical Area (MSA) designation of metropolitan and non-metropolitan counties (or county equivalents), adjusted by the most currently available Goldsmith Modification, which identifies rural areas within large metropolitan counties.⁽¹³²⁵⁾

505. Adoption of this definition of rural areas is consistent with the approach adopted in the health care section of this Order⁽¹³²⁶⁾ and represents a simple approach for schools and libraries to determine eligibility for an incremental high cost discount. OMB's list of metropolitan counties and the list of additional rural areas within those counties identified by the Goldsmith Modification are readily available to the public. Eligible schools and libraries will need only to consult those lists to determine whether they are located in rural areas for purposes of the universal service discount program. In addition to being simple to administer, basing the high cost discount on a school's or library's location in a rural area is a reasonable approach for determining which entities should receive the high cost discount. The distance between customers and central offices, and the lower volumes of traffic served by central offices in rural areas, combine to create less affordable telecommunications rates.⁽¹³²⁷⁾

506. We conclude that all of the alternatives would likely be more administratively burdensome for schools, libraries, and carriers than using the urban/rural distinction. For example, ARMIS data is adjusted every year, which might lead to frequent changes in a school's or library's eligibility for a high cost discount, forcing those institutions that might otherwise be near the cutoff points to review the cost data every year and likely generating many calls to the carriers. In addition, this approach could create uncertainty for those institutions inclined to consider multi-year expenditures. While the definitions of urban and rural areas might also change, these classifications are not adjusted annually and it is likely that schools or libraries would already be aware of the changes in their areas leading to their reclassification from urban to rural (or rural to urban). Density pricing zones do not exist in all areas, and in areas where they do exist, the zones could change at irregular intervals, and it is not clear how one would recognize the "premium" rates which Brooklyn Public Library suggests should form the basis of the greater discount afforded to schools and libraries located in high cost areas.⁽¹³²⁸⁾ The use of forward-looking cost models, meanwhile, is not practical here because the data will not be readily accessible to schools and libraries. Finally, the record does not include the data to enable us to select the T-1 prices to divide schools and libraries into categories of those facing high, mid, or low T-1 prices, nor does it support the use of the price of a 1.5 Mbps channel as a surrogate for all services schools and libraries may select. In any event, schools and libraries may choose to purchase services other than

T-1.

507. Because we adopt the use of categories of rural and urban to determine a school's or library's eligibility for a high cost discount, we conclude that there should be only two categories of schools and libraries. Because schools and libraries will be categorized as either rural (high cost) or urban (low cost), the "mid-cost" category recommended by the Joint Board is no longer relevant. We find that a matrix of two columns is also somewhat simpler to use and thus, we modify the discount matrix recommended by the Joint Board to have two columns (i.e., "urban" and "rural") as opposed to three.

d. Identifying Economically Disadvantaged Schools and Libraries

508. Schools. We agree with the Joint Board's recommendation that we measure a school's level of poverty in a manner that is minimally burdensome, ideally using data that most schools already collect.⁽¹³²⁹⁾ Although the Joint Board concluded that the national school lunch program meets this standard, it suggested that the Commission also consider other approaches that would be both minimally burdensome for schools and accurate measures of poverty.⁽¹³³⁰⁾

509. Based on our review of the comments filed in response to the Recommended Decision Public Notice, we agree with the Joint Board that using eligibility for the national school lunch program to determine eligibility for a greater discount accurately fulfills the statutory requirement to ensure affordable access to and use of telecommunications and other supported services for schools.⁽¹³³¹⁾ As noted by commenters, the national school lunch program determines students' eligibility for free or reduced-price lunches based on family income, which is a more accurate measure of a school's level of need than a model that considers general community income.⁽¹³³²⁾ In addition, the national school lunch program has a well-defined set of eligibility criteria, is in place nationwide, and has data-gathering requirements that are familiar to most schools. We agree with USTA⁽¹³³³⁾ that use of an existing and readily available model, such as the national school lunch program, will be both relatively simple and inexpensive to administer.

510. We conclude that a school may use either an actual count of students eligible for the national school lunch program or federally-approved alternative mechanisms⁽¹³³⁴⁾ to determine the level of poverty for purposes of the universal service discount program. Alternative mechanisms may prove useful for schools that do not participate in the national school lunch program or schools that participate in the lunch program but experience a problem with undercounting eligible students (e.g., high schools, rural schools, and urban schools with highly transient populations).⁽¹³³⁵⁾ Schools that choose not to use an actual count of students eligible for the national school lunch program may use only the federally-approved alternative mechanisms contained in Title I of the Improving America's Schools Act, which equate one measure of poverty with another.⁽¹³³⁶⁾ These alternative mechanisms permit schools to choose from among existing sources of poverty data a surrogate for determining the number of students who would be eligible for the national school lunch program. A school relying upon one of these alternative mechanisms could, for example, conduct a survey of the income levels of its students' families. We conclude that only federally-approved alternative mechanisms, which rely upon actual counts of low-income children, provide more accurate measures of poverty and less risk of overcounting, than other methods suggested by some commenters that merely approximate the percentage of low-income children in a particular area.⁽¹³³⁷⁾ Although the undercounting problem experienced by some schools in their use of the national school lunch program was raised by commenters after the Recommended Decision and is, therefore, an issue that the Joint Board did not consider, we conclude that our determination to permit the use of federally-approved alternative mechanisms is consistent with the Joint Board's recommendation that the method for measuring economic disadvantage be minimally burdensome and use data that schools already collect.⁽¹³³⁸⁾ We also note that federally-approved alternative mechanisms have been endorsed in existing regulations,⁽¹³³⁹⁾ have been the product of a negotiated rulemaking in which schools participated, and are in use already by some schools.⁽¹³⁴⁰⁾

511. We, therefore, adopt neither GTE's suggestion that we use U.S. Census Bureau data⁽¹³⁴¹⁾ nor CEDR's proposal that we consider the value of owner-occupied housing or median household income and population density⁽¹³⁴²⁾ to determine a school's level of poverty because these methods may burden many schools with the task of collecting additional data. We also find that such methods, to the extent that they measure the wealth of a school's surrounding area rather than the wealth of a school's students, are less accurate than the federally-approved alternative mechanisms. Thus, a school located in an economically disadvantaged community that does not draw its students from that community, such as a magnet, private, or parochial school, might receive a greater discount than other schools serving a similar student population.

512. Libraries. The Joint Board recommended that, in the absence of a better proposal, a library's degree of poverty should be measured based on how disadvantaged the schools are in the school district in which the library is located. Under this plan, a library would receive a level of discount representing the average discount, based on both public and non-public schools, offered to the schools in the school district in which it is located. Finding that this was "a reasonable method of calculation because libraries are likely to draw patrons from an entire school district and this method does not impose an unnecessary administrative burden on libraries," the Joint Board recommended that the Commission seek additional comment on this and other measures of poverty that would be minimally burdensome for libraries.⁽¹³⁴³⁾

513. Based on our review of the comments received in response to the Recommended Decision, we adopt the Joint Board's recommendation and conclude that a library's level of poverty be calculated on the basis of school lunch eligibility in the school district in which the library is located, with one modification. We conclude that it would be less administratively burdensome and, therefore, would impose lower administrative costs, to base a library's level of poverty on the percentage of students eligible for the national school lunch program only in the public school district in which the library is located. To require the administrator to average the discounts applicable to both public and non-public schools would impose an unnecessary administrative burden without an offsetting benefit to libraries.

514. We agree with commenters that library service areas and school districts often are not identical, and that libraries may not have ready access to information that would allow them to coordinate their service areas with the applicable school district lunch data.⁽¹³⁴⁴⁾ We are not, however, requiring libraries to coordinate their service areas with school districts. The procurement officer responsible for ordering telecommunications and other supported services for a library or library system need only obtain from the school district's administrative office the percentage of students eligible for the national school lunch program in the district in which the library is located. We conclude, therefore, that adopting this approach will not impose an unnecessary administrative burden on libraries.

515. ALA notes that residents of towns that do not have schools generally must send their children to other towns to attend school.⁽¹³⁴⁵⁾ We find that the discount for a library in such a circumstance would be based on an average of the percentage of students eligible for the school lunch program in each of the school districts in which the town's children attend school.

516. Moreover, ALA recommends using the poverty rate, based on U.S. Census Bureau data, of families in a library's service area to determine that library's level of poverty. Specifically, ALA proposes an alternate discount matrix in which libraries' levels of poverty are calculated based on the percentage of families at or below the poverty line within a one-mile⁽¹³⁴⁶⁾ or two-mile radius⁽¹³⁴⁷⁾ of a library branch or facility. ALA argues that using residential poverty data, which is based on U.S. Census Bureau data, reflects more accurately the level of poverty in a library's service area.⁽¹³⁴⁸⁾ Colorado Department of Education likewise asserts that the one-mile radius should provide a standard basis for calculating the poverty level for all libraries.⁽¹³⁴⁹⁾ We conclude, however, that there is not sufficient evidence in the record to support claims that the poverty level within either a one- or two-mile radius of a library branch or facility accurately reflects the poverty level throughout a library's entire service area. We also decline to adopt the approach initially presented by ALA in their comments, referred to as the "LSTA poverty factor," which would require libraries to calculate the percentage of families at or below the poverty line throughout their service areas.⁽¹³⁵⁰⁾ We conclude that because the record does not demonstrate that libraries routinely collect such data, imposing such a requirement would be administratively burdensome for most libraries.

517. We also conclude that using school lunch eligibility to calculate the poverty level of both schools and libraries addresses Colorado Department of Education's concern that equity exist between schools and libraries.⁽¹³⁵¹⁾ That is, because school lunch eligibility data measures the percentage of students within 185 percent of the poverty line, the program that we adopt herein will ensure that both schools and libraries are afforded discounts based on the same measure of poverty. Under ALA's proposal, however, libraries would have received discounts based on the percentage of families at or below the poverty line, while schools would have received discounts based on the percentage of students within 185 percent of the poverty line. We conclude, therefore, that libraries will not be disadvantaged by adoption of the Joint Board's recommendation to use school lunch eligibility to determine the level of poverty for both schools and libraries. We also conclude that using the same measure of poverty for both schools and libraries will lower the administrative costs associated with the discount program described herein.

518. In addition, we do not adopt Seattle's suggestion that libraries be required to aggregate discounts from the three closest public schools,⁽¹³⁵²⁾ nor do we adopt the recommendations of Pennsylvania Library Ass'n and Mississippi that we use per-capita market value of the local real estate market or per capita income levels in each community to determine a library's level of poverty.⁽¹³⁵³⁾ We conclude that these approaches would impose a greater administrative burden on libraries than would requiring them to obtain the school district's school lunch eligibility data insofar as data pertaining to local market values or income levels may be less accessible to libraries than school lunch eligibility data obtained from a local school district's administrative office. For these reasons, we conclude that relying on school lunch eligibility data will provide an accurate measure of economic disadvantage and will impose a minimal administrative burden on libraries.

519. Levels of Poverty. We agree with the Joint Board's recommendation that we adopt a step function to define the level of discount available to schools and libraries, based on the level of poverty in the areas they serve.⁽¹³⁵⁴⁾ A step function will define multiple levels of discount based on the percentage of students eligible for the national school lunch program. We also agree with the Joint Board's recommendation that the number of steps for determining discounts applied to telecommunications and other supported services should be based principally on the existing Department of Education categorization of schools eligible for the national school lunch program.⁽¹³⁵⁵⁾ We conclude that this approach is reasonable because the national school lunch program is based on family income levels. CNMI proposes that the matrix reflect additional considerations, such as per-capita income,⁽¹³⁵⁶⁾ but does not elaborate on how such a matrix would be constructed. Because CNMI's suggested approach would require schools and libraries to collect additional data with which they are not likely to be familiar and it is not clear that use of such data would further the goals of the Act, we conclude that including factors other than level of poverty and location in a high cost area in the discount matrix would be unreasonably burdensome.

520. For purposes of administering the school lunch program, the Department of Education places schools in five categories, based on the percentage of students eligible for free or reduced-price lunches: 0-19 percent; 20-34 percent; 35-49 percent; 50-74 percent; and 75-100 percent.⁽¹³⁵⁷⁾ Consistent with the Joint Board's recommendation, we adopt the percentage categories used by the Department of Education for schools and libraries, and we also establish a separate category for the least economically disadvantaged schools and libraries, i.e., those with less than one percent of their students eligible for the national school lunch program.⁽¹³⁵⁸⁾ Schools and libraries in the "less than one percent" category should have comparatively greater resources within their existing budgets to secure affordable access to services even with lower discounted rates. We, therefore, adopt the following matrix for schools and libraries:

521. We conclude that this approach fulfills our obligation to ensure that telecommunications and other supported services are provided to schools and libraries at "rates less than the amounts charged for similar services to other parties."⁽¹³⁶⁰⁾ We also conclude that the step function used to define the entries in the discount matrix addresses CSE's concern that we provide greater levels of support to schools and libraries that have the greatest need.⁽¹³⁶¹⁾

522. Self-Certification Requirements. We agree with the Joint Board's recommendation that, when ordering telecommunications and other supported services, the procurement officer responsible for ordering such services for a school or library must certify its degree of poverty to the universal service administrator. For eligible schools ordering telecommunications and other supported services at the individual school level, which we anticipate will be primarily non-public schools, the procurement officer ordering such services must certify to the universal service administrator the percentage of students eligible in that school for the national school lunch program.⁽¹³⁶²⁾ For eligible libraries ordering telecommunications and other supported services at the individual library level, which we anticipate will be primarily single-branch libraries, the procurement officer ordering such services must certify to the universal service administrator the percentage of students eligible for the national school lunch program in the school district in which the library is located.

523. For eligible schools ordering telecommunications and other supported services at the school district or state level, we agree with the Joint Board's recommendation that we minimize the administrative burden on schools while at the same time ensuring that the individual schools with the highest percentages of economically disadvantaged students receive the deepest discounts for which they are eligible.⁽¹³⁶³⁾ We, therefore, adopt the Joint Board's recommendation to require the procurement officer for each school district or state applicant to certify to the universal service administrator the percentage of students in each of its schools that is eligible for the national school lunch program,⁽¹³⁶⁴⁾ calculated either through an actual count of eligible students or through the use of a federally-approved alternative mechanism, as discussed above.⁽¹³⁶⁵⁾ If the level of discount were instead calculated for the entire school district, a school serving a large percentage of students eligible for the national school lunch program that was located in a school district comprised primarily of more affluent schools would not benefit from the level of discount to which it would be entitled if discounts had been calculated on an individual school basis. The school district or state may decide to compute the discounts on an individual school basis or it may decide to compute an average discount; in either case, the state or the district shall strive to ensure that each school receives the full benefit of the discount to which it is entitled.

524. For libraries ordering telecommunications and other supported services at the library system level, we agree with commenters asserting that library systems should be able to compute discounts on either an individual branch basis or based on an average of all branches within the system.⁽¹³⁶⁶⁾ Specifically, if individual branches within a library system are located in different school districts, we conclude that the procurement officer responsible for ordering telecommunications and other supported services for the library system must certify to the administrator the percentage of students eligible for the national school lunch program in each of the school districts in which its branches are located. This requirement is consistent with the treatment of school districts, as discussed above, and encourages library systems to strive to ensure that a branch located within a less affluent area of an otherwise more affluent library system will receive the greater discounts targeted to economically disadvantaged institutions. The library system may decide to compute the discounts on an individual branch library basis or it may decide to compute an average discount; in either case, the library system shall strive to ensure that each library receives the full benefit of the discount to which it is entitled.

525. Similarly, for library consortia ordering telecommunications and other supported services, we conclude that each consortium's procurement officer must certify to the administrator the percentage of students eligible for the national school lunch program for the school district in which each of its members is located. Each library consortium may compute the discounts on the basis of the school district in which each consortium member is located or it may compute an average discount; in either case, each library consortium shall strive to ensure that each of its members receives the full benefit of the discount to which it is independently entitled.

526. Additional Considerations. We do not adopt several other proposals related to measuring economic disadvantage. We decline to adopt EDLINC's proposal that we establish a "hardship appeals process" for a school or library in great need that does not, according to the estimation of that school or library, receive an adequate discount.⁽¹³⁶⁷⁾ We agree with AFT that our priority must be to establish the basic schools and libraries discount program. Whether a hardship appeals process as described by EDLINC is necessary can be addressed when the Joint Board reviews the discount program in 2001 or sooner, if necessary. In the interim, we are satisfied that the discount program that we adopt, reaching as high as 90 percent for the most disadvantaged schools and libraries, will provide sufficient support. We also do not adopt Ohio DOE's suggestion that we establish a trust fund for disadvantaged schools and libraries to ensure that sufficient funds are available when such entities are ready to participate in the universal service discount program.⁽¹³⁶⁸⁾ We conclude that such a fund is not necessary because eligible schools and libraries that are not ready to participate in the discount program in the first year simply may participate in subsequent years. As discussed above, the cap applies on an annual basis, and funds are not committed beyond the present funding year. Moreover, any funds not used in a particular year will be carried forward to the next year and will be added to the $2.25 billion annual cap, if demand exists.

527. Although Delaware PSC's contention that Delaware will be a "net loser" under the schools and libraries discount structure because it is likely to contribute more money than it will receive may be correct,⁽¹³⁶⁹⁾ the Joint Board urged us to provide greater discounts to economically disadvantaged schools and libraries. The record in this proceeding also supports such discounts.⁽¹³⁷⁰⁾ Moreover, the "net loser" argument is not compelling because the universal service discount program is tailored to provide support to eligible schools and libraries, not states. Because we must ensure that telecommunications and other supported services are provided to schools and libraries at "rates less than the amounts charged for similar services to other parties,"⁽¹³⁷¹⁾ we also do not adopt Cincinnati Bell's proposal that the calculation of discounts for schools and libraries be left to the states.