1. In this Order, we take major steps to simplify and streamline the operation of our universal service mechanism for schools and libraries, while improving our oversight over the support mechanism. In section 254 of the 1996 Act, Congress directed the Commission to establish explicit universal service support mechanisms to ensure the delivery of affordable telecommunications service to all Americans, including low-income consumers, rural health care providers, and eligible schools and libraries. Pursuant to section 254, eligible schools, libraries, and consortia that include eligible schools and libraries, may receive discounts for eligible telecommunications services, Internet access, and internal connections. The Commission has issued several orders interpreting rules governing the operation of the schools and libraries universal service support mechanism.

2. Since the inception of the schools and libraries support mechanism in 1997, schools and libraries have received over $9.6 billion in funding commitments. This funding has provided millions of school children and library patrons access to modern telecommunications and information services. The Commission previously sought comment in a Notice of Proposed Rulemaking (Schools and Libraries NPRM) on ways to streamline the operation of the schools and libraries support mechanism, in order to ensure that the benefits of this universal service support mechanism for schools and libraries are distributed in a manner that is fair and equitable and improve our oversight over this program to ensure that the goals of section 254 are met without waste, fraud, and abuse.

3. In response to the Schools and Libraries NPRM, the Commission received a tremendous outpouring of ideas and suggestions relating to the operation of the schools and libraries mechanism. In this Second Report and Order (Order), we adopt a number of rules to streamline program operation and promote the Commission’s goal of reducing the likelihood of fraud, waste, and abuse. First, we modify certain rules regarding eligible services. In particular, we clarify the statutory term “educational purposes.” We clarify that our rules prohibit the funding of discounts for duplicative services. We also clarify our rules to ensure that wireless services are eligible to the same extent wireline services are eligible. We modify our rules to make voice mail eligible for discounts. Second, we direct the Universal Service Administrative Company (USAC or Administrator) to develop a pilot program testing an online list of internal connections equipment that is automatically eligible for discounts, provided the uses are eligible and all other funding requirements are satisfied. Third, we codify the “30 percent” policy, which is a processing benchmark currently used by the Administrator when reviewing requests that include both ineligible and eligible services.

4. With regard to post commitment program administration, we adopt a rule requiring service providers to give applicants the choice each funding year whether to pay the discounted price or pay the full price and then receive reimbursement through the Billed Entity Applicant Reimbursement (BEAR) process, and adopt a rule expressly requiring service providers to remit BEAR payments to the applicant within 20 days after receipt of such payments from the Administrator.

5. With regard to appeals, we permanently extend the time limit for filing an initial appeal with the Schools and Libraries Division (SLD) and the Commission from 30 to 60 days and conclude that all appeals should be treated as filed on the date that they are postmarked. We also conclude that all successful appeals should be funded to the extent that they would have been funded had the discounts been awarded through the normal funding process. We also make a minor procedural change to our rules relating to filing appeals in this docket.

6. As part of our ongoing efforts to limit waste, fraud, and abuse, we adopt rules to prevent bad actors from receiving benefits associated with the schools and libraries mechanism. In particular, we conclude that anyone convicted of a criminal violation or found civilly liable for actions relating to this program shall be debarred from participation for three years, absent extraordinary circumstances. Also, we decline at this time to adopt further measures to reduce unused funds, in light of our prior actions to streamline the program and increase the efficiency of fund use. We make conforming rule changes in accord with the No Child Left Behind Act of 2002, and we delete certain obsolete sections of our rules.

7. After consideration of many of the important issues raised in the comments to the Schools and Libraries NPRM, we find that it is appropriate to seek further comment on several additional matters. Therefore, in the Further Notice of Proposed Rulemaking (Further Notice), we seek comment on additional proposals to further improve the operation of the schools and libraries support mechanism. In particular, we seek comment on specific rules and procedures implementing the Commission’s policy to carry forward unused funds from the schools and libraries support mechanism in subsequent funding years of the schools and libraries support mechanism adopted in the First Report and Order (First Order) adopted in this docket. We seek comment regarding our existing rules governing the filing of an applicant’s technology plan, and the viability of an online computerized eligible services list. We also seek comment on additional measures to limit waste, fraud, and abuse.

II. PROGRAM OVERVIEW AND Background

8. Under the schools and libraries universal service support mechanism, eligible schools, libraries, and consortia that include eligible schools and libraries, may receive discounts for eligible telecommunications services, Internet access, and internal connections. In order to receive discounts on eligible services, the Commission’s rules require that the school or library submit to the Administrator a completed FCC Form 470, in which the applicant sets forth its technological needs and the services for which it seeks discounts. Once the school or library has complied with the Commission’s competitive bidding requirements and entered into agreements for eligible services, it must file an FCC Form 471 application to notify the Administrator of the services that have been ordered, the service providers with whom the applicant has entered into an agreement, and an estimate of funds needed to cover the discounts to be given for eligible services.

9. The Administrator reviews the FCC Forms 471 that it receives and issues funding commitment decisions indicating discounts that the applicant may receive in accordance with the Commission’s rules. Subsequently, the applicant either: (1) pays the bill in full, and seeks reimbursement for discounts from the Administrator via the service or equipment provider, or (2) pays the non-discount portion of the service cost to the service provider, who, in turn, seeks reimbursement from the Administrator for the discounted amount.

10. The Administrator acts on these requests pursuant to established procedures in accord with Commission directions and decisions. If the Administrator denies a request for funding, the applicant may either appeal directly to the Commission, or appeal to the Administrator. If rejected on appeal by the Administrator, the applicant may appeal to the Commission. Since inception, the program has experienced a tremendous expansion of both the number of applicants and recipients, and the number of appeals regarding decisions and procedures.

11. As the program approached its fifth year of operation, the Commission issued the Schools and Libraries NPRM to seek comment on ideas raised by both the applicant and service provider communities for improving the program. In particular, the Commission sought comment on ways to ensure that the program funds are utilized in an efficient, effective, and fair manner, while preventing waste, fraud, and abuse. One hundred and twenty-seven parties filed comments and 25 parties filed reply comments.

12. On June 13, 2002, we released the First Order, which adopted a framework for the treatment of unused funds from the schools and libraries universal service support mechanism. In that order, we determined that it was in the public interest to take immediate action to stabilize the contribution factor, while the Commission considered whether and how to reform the way in which contributions to the universal service mechanism are assessed. We also concluded that beginning no later than the second quarter of 2003, which began April 1, 2003, any unused funds from the schools and libraries support mechanism shall, consistent with the public interest, be carried forward for disbursement in subsequent funding years of the schools and libraries support mechanism. Additionally, we stated our intent to “develop specific rules implementing this policy not later than second quarter 2003 in order to maximize the availability of these funds for schools and libraries.”

III. Second report and order

A. Eligible Services

13. Background In section 254 of the Act, Congress instructed the Commission to establish a universal service support mechanism for eligible schools and libraries. 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).”

14. Section 254 imposes a number of restrictions on schools and libraries receiving discounted services under the universal service mechanism. Among other things, section 254(h)(1)(B) requires that any services requested by schools and libraries be used for “educational purposes.” That section also specifies that schools and libraries make a “bona fide request” for services within the definition of universal service.

15. In implementing these statutory provisions, the Commission concluded that telecommunications services, internet access, and internal connections would be funded. The Commission concluded that schools and libraries “should have maximum flexibility to purchase the package of services they believe will most effectively meet their communications needs.” The Commission adopted a requirement, codified in section 54.504(b)(2)(ii) of the rules, that schools and libraries certify that the services obtained through discounts would be used solely for educational purposes. The Commission also adopted a requirement that schools and libraries prepare a technology plan, to be approved by the state, the Administrator, or an independent agency approved by the Commission, to ensure that requests for discounts “are based on the reasonable needs and resources of the applicant.”

16. In the Schools and Libraries NPRM, we sought comment on changes in the application process that relate to eligible services. We invited parties to submit proposals for changes that would improve the operation of the eligibility determination process in terms of efficiency, predictability, flexibility, and administrative cost. In response, commenters addressed a broad range of issues relating to the eligibility process, including the scope of the requirement that services be used for educational purposes, whether support is available for duplicative services, eligibility of wireless services, eligibility of voice mail, and the potential use of a computerized eligible services list.

17. Educational Purpose We find it appropriate to clarify the scope of the requirement that services be used for an educational purpose. Accordingly, we amend section 54.500 of our rules to clarify the meaning of educational purposes. Pursuant to this requirement, the Administrator has denied requests for services to be used by support staff not involved in instructional activities. We reiterate our recognition that the technology needs of participants in the schools and libraries program are complex and unique to each participant. We find that, in the case of schools, activities that are integral, immediate, and proximate to the education of students, or in the case of libraries, integral, immediate, and proximate to the provision of library services to library patrons, qualify as educational purposes under this program. To guide applicants in preparing their applications and to streamline the Administrator’s review of applications, we further establish a presumption that activities that occur in a library or classroom or on library or school property are integral, immediate, and proximate to the education of students or the provision of library services to library patrons.

18. This clarification, however, is not intended to allow the general public to use services and facilities obtained through this support mechanism for non-educational purposes. In the Alaska Order, the Commission granted the State of Alaska a limited waiver of section 54.504(b)(2)(ii) of the Commission’s rules, allowing members of rural remote communities in Alaska that lack local or toll-free dial-up access to the Internet to use excess service obtained through the support mechanism, when the services are not in use by the schools and libraries. The clarification we adopt today does not affect the terms of Alaska’s waiver or allow schools or libraries outside the scope of that waiver to provide services to the general public in that manner.

19. Under this standard, reasonable requests for any supported service – over any technology platform – to be used by any school or library staff while in a library, classroom, or on school or library property, shall be eligible for discounts. Moreover, we conclude that in certain limited instances, the use of telecommunications services offsite would also be integral, immediate, and proximate to the education of students or the provision of library services to library patrons, and thus, would be considered to be an educational purpose. By adopting this standard, we provide to schools and libraries and the state and local authorities that govern them a more definitive interpretation of educational purposes, in order to assist them in pursuing their programmatic objectives.

20. We find that our clarification is consistent with statutory mandates that the purpose for which support is provided be for educational purposes in a place of instruction. Moreover, this clarification benefits applicants because it simplifies the application process by making the approval of discounted services more predictable, without sacrificing flexibility, thus furthering our streamlining goals. Because of the difficulties inherent in implementing changes in eligibility in the middle of a funding cycle, services will be available under this clarification beginning with the start of the next funding year (Funding Year 2004), on July 1, 2004.

21. We believe that this interpretation of educational purpose should not result in an increase in waste, fraud, or abuse. First, as the presumption set forth above demonstrates, discounts will only be awarded to support activities that have a defined nexus to education, or, in the case of libraries, to the delivery of library services to library patrons. Thus, for instance, using a school’s or a library’s discounted telecommunications services to support a private enterprise or a political campaign will continue to be a violation of the Act and our rules. In addition, because our rules require schools and libraries to pay a percentage of the cost of services, schools and libraries are unlikely to request services that are not economical. This is particularly true in an environment where many institutions face shrinking budgets. We therefore conclude this clarification of educational purpose should increase program efficiency without leading to waste, fraud, or abuse.

22. Funding of Duplicative Services In the Universal Service Order, the Commission indicated that an applicant’s request for discounts should be based on the reasonable needs and resources of the applicant, and bids for services should be evaluated based on cost-effectiveness. Pursuant to this requirement, the Administrator has denied discounts for duplicative services. Duplicative services are services that deliver the same functionality to the same population in the same location during the same period of time. We emphasize that requests for discounts for duplicative services will be rejected on the basis that such applications cannot demonstrate, as required by our rules, that that they are reasonable or cost effective.

23. We find that the use of discounts to fund duplicative services contravenes the requirement that discounts be awarded to meet the “reasonable needs and resources” of applicants. We find that requests for discounts for duplicative services are unreasonable because they impact the fair distribution of discounts to schools and libraries. The schools and libraries mechanism of the universal service fund is capped at $2.25 billion dollars. Under our rules, when total demand exceeds the cap, discounts for Priority Two services (internal connections) are awarded after all Priority One requests are satisfied, beginning with the most economically disadvantaged schools and libraries as determined by the schools and libraries discount matrix. Total demand for discounts from the schools and libraries program has exceeded the funding cap in the past two funding years and we expect this trend to continue. Thus, funding duplicative services would operate to award discounts to applicants higher on the matrix twice for the same services, while some others, because of their lower rank on the matrix, could not receive discounts for the same service because the Priority Two funds available under the cap had had been exhausted.

24. In addition, we find that it is inconsistent with the Commission’s rules to deliver services that provide the same functionality for the same population in the same location during the same period of time. We believe that requests for duplicative services are not consistent with the Commission’s rules regarding competitive bidding, which require applicants to evaluate whether bids are cost effective. In the Universal Service Order, the Commission stated that price is the primary of several factors to be considered. Thus, applicants must evaluate these factors to determine whether an offering is cost effective. We find that it is not cost effective for applicants to seek discounts to fund the delivery of duplicative services. Therefore, we conclude that this rule can be violated by the delivery of services that provide the same functionality for the same population in the same location during the same period of time. We recognize that determining whether particular services are functionally equivalent may depend on the particular circumstances presented. In addition, we amend section 54.511(a) of our rules to make clear that applicants must consider whether the service is cost effective.

25. Eligibility of Wireless Services Under section 254(h)(1)(B), eligible schools, libraries, and consortia that include eligible schools and libraries, are eligible for discounts on telecommunications services. Accordingly, basic telephone service, which includes mobile and fixed wireless service, is eligible for discounts pursuant to the schools and libraries universal service support mechanism. The cost of telephones or associated maintenance of equipment is not eligible for discount. In the Schools and Libraries NPRM, we sought comment on whether we needed to modify any rules and policies regarding the eligibility of wireless services. We also sought comment on whether broadening the eligibility of wireless services under the schools and libraries universal service support mechanism, consistent with the statute, would improve the application review process.

26. We reiterate that wireline and wireless telecommunications services are equally eligible under our current rules. If wireless service is used at the school or library for educational purposes, that service is eligible for support to the same extent as requests for wireline-based telecommunications services. We emphasize that, under existing rules, requests for wireline and wireless services must be reviewed under the same standard. It would be inappropriate, for instance, to presume that wireline services are used for educational purposes while presuming that wireless services are not used for similar purposes. What is relevant, for purposes of determining compliance with the statutory standard, is whether the service in question is integral, immediate, and proximate to the provision of education or library services, regardless of the technology platform. As we stated above, we presume that activities that occur in a library or classroom or on library or school property, are integral, immediate, and proximate to education of students, or, in the case of libraries, to the provision of library services to library providers, and therefore qualify as educational purposes.

27. We believe that this restatement of technology neutrality, in tandem with our clarification of educational purposes set forth above, will serve to reduce confusion and uncertainty regarding the eligibility of wireless services and thus further our streamlining efforts by making the application process more predictable for applicants.

28. Eligibility of Voice Mail In the Universal Service Order, the Commission decided that certain information services – namely Internet access – would be funded. The Commission also determined, without further discussion, that voice mail would not “at [that] time” be eligible, based, in part, on the recommendation of the Federal-State Joint Board on Universal Service that such information services not be eligible. Specifically, the Joint Board had recommended that, “by establishing a discount mechanism for telecommunications and Internet access, we conclude that the intent of Congress will be met and it is not necessary to support the full panoply of information services at this time.” We now think it appropriate to revisit this issue, in light of our experience over the last five years.

29. The prevalence of and need for voice mail as a way of communicating with school and library staff for educational purposes causes us to reexamine the eligibility of voice mail. Virtually all commenters supported making voice mail an eligible service, including the state members of the Federal-State Joint Board on Universal Service. After reviewing the record on this issue, we conclude that voice mail should be eligible for discounts as a Priority One service under the universal service support mechanism in the same way that Internet access, i.e., e-mail, is currently eligible. Voice mail services are used in conjunction with telecommunications services. We agree with commenters that voice mail is functionally equivalent to e-mail. Therefore, we believe that it is administratively and operationally appropriate for such requests to be processed within the same priority as telecommunications services and Internet access. After five years of experience with the schools and libraries universal service support mechanism, we find that making voice mail now eligible for discount is consistent with Congress’s intent “to enhance…access to advanced telecommunications and information services” for schools and libraries. Indeed, voice mail is an integral part of communications, especially in schools. We conclude that voice mail enhances access to information services for schools and libraries by allowing meaningful communication among parents, teachers, and school and library administrators.

30. Moreover, making voice mail eligible will reduce administrative costs, because neither applicants nor USAC will need to go through the exercise of breaking out the cost of voice mail from a bundled price for telecommunications service. We believe this modification will further our goals of improving program operation, without increasing opportunities for waste, fraud, and abuse. Accordingly, we deem voice mail to be eligible for discounts under the schools and libraries universal service support mechanism and amend sections 54.503, 54.507, and 54.517 of our rules. We instruct USAC to process funding requests for voice mail services starting in Funding Year 2004 consistent with this Order.

31. Computerized Eligible Service List We conclude that it would be beneficial to develop a process that would simplify applicants’ selection of eligible services. The Commission currently directs the Administrator to determine whether particular services fall within the eligibility criteria established under the 1996 Act and the Commission’s rules and policies. The Administrator evaluates, in consultation with the Commission on an ongoing basis, particular services and products offered by service providers, and determines their eligibility. In order to provide applicants with general guidance, the Administrator makes available on its website a list of categories of service that are conditionally eligible or ineligible, although it does not identify specific eligible brands or items. Applicants or service providers may appeal the Administrator’s decision that a given service is ineligible for discounts only after a requested discount for that service is denied.

32. In the Schools and Libraries NPRM, we specifically sought comment on whether to establish an online computerized list of actual products and services, whereby applicants could select a specific product or service as part of their FCC Form 471 application. We suggested that under such a proposal, the number of instances in which applicants seek funding for ineligible services might decrease. We also suggested that such a process would considerably simplify the application review process. We sought comment on the desirability and feasibility of this approach. Specifically, we sought comment on how often such a list should be updated; how to ensure that such a list would not inadvertently limit access to products and services newly introduced to the marketplace; and how to obtain input on an ongoing basis regarding what specific products and services should be eligible.

33. After reviewing the record, we conclude that there is merit to creating an online computerized list system for internal connections. We decline, however, to mandate a similar computerized list system at this time for telecommunications services and Internet access.

34. In general, we agree with commenters that such a list would aid applicants to more clearly understand which items have already been approved by USAC as eligible. Use of such a list should facilitate expedited processing of many funding requests, decrease rejection of requests for ineligibility, and decrease the chances that any ineligible request would be accidentally awarded discounts. The use of this list by applicants, therefore, should reduce the burden on applicants in completing their applications. In addition, use of such a list would streamline review by the Administrator, allowing it to focus on more complex matters arising in the application process. Finally, by helping to avoid support of ineligible services, an online computerized list would further the Commission’s goal of preventing fraud and abuse.

35. At the same time, we are persuaded by the Administrator’s concerns and those of certain commenters that such a list should be developed with care. For example, the list should be careful not to favor certain vendors over others. Thus, we conclude that the development of such a list should proceed in stages. The Administrator should first test the use of such a list on a limited portion of the eligible services and products list. Therefore, we direct USAC, in conjunction with the Wireline Competition Bureau (Bureau), to develop and test as a pilot program an online list for internal connections equipment. We believe that such a pilot program would assist in further developing a record regarding how such a list could, in practice, provide clearer guidance about the potential eligibility of telecommunications and Internet access services than the current website posting.

36. We direct the Administrator to design a pilot program in consultation with the Bureau that is in keeping with the following principles: (1) the pilot system should continue to allow flexibility of choice of products by applicants; (2) this list should operate as a safe harbor, rather than a complete list of all eligible items; (3) all equipment and services listed will be automatically eligible for discounts provided the use is eligible and other funding requirements are satisfied; (4) there should be a procedure to have new products added to the list; (5) applicants and service providers may use the existing appeals procedures to appeal decisions by the Administrator rejecting the addition of specific items on the list; (6) applicants may also seek support for internal connections equipment that is not on this list; (7) such requests will be evaluated consistent with the Administrator’s existing practice of ensuring that the equipment and proposed use are consistent with educational purposes.

37. We expect that the Administrator will be able to implement the pilot program no later than Funding Year 2005. The Administrator will timely report to the Commission about the effectiveness of the program during and after successful implementation. USAC’s report should include information that details the effect of the list on the administrative review process, including the cost, and the number of applicants making use of such a list. We will evaluate this data and take it into consideration when evaluating whether and how to proceed to make this list accessible from the online FCC Form 471, and whether and how to incorporate telecommunications and Internet access services into such a list. In addition, in the accompanying Further Notice we seek further comment on the feasibility of an online eligible services brand name list for telecommunications services and Internet access.

B. Codification of 30 Percent Policy

38. Background Currently, the Administrator utilizes a 30 percent processing benchmark when reviewing requests that include both eligible and ineligible services. If less than 30 percent of the request seeks discounts for ineligible services, the Administrator normally will consider the request and issue a funding commitment for the eligible services, denying discounts only for the ineligible part. If 30 percent or more of the request seeks discounts for ineligible services, the Administrator will deny the funding request in its entirety. Because the Administrator’s annual administrative costs are drawn from the same $2.25 billion that supports the award of discounts, an increase in the administrative costs of eligibility review directly reduces the amount of funds available for actual discounts.

39. In the Schools and Libraries NPRM, we sought comment on the operational benefits and burdens of the 30 percent policy. We also sought comment on whether there are alternative procedures that would improve program operation, while still providing appropriate incentives to applicants to seek discounts only for eligible services.

40. Discussion We conclude that the 30 percent policy should be codified in the Commission’s rules. We find that the procedure improves program operation and is important in reducing the administrative costs of the program because it enables SLD to efficiently process requests for support for services that are eligible for discounts but that also include some ineligible components. We further find that the 30 percent policy provides an appropriate incentive to applicants to seek discounts for only eligible products and services. We find that the 30 percent policy provides an adequate safe harbor for applicants that inadvertently request ineligible products or services, and appropriately balances applicant accountability with effective administrative review. The 30 percent policy allows the Administrator to process efficiently requests for funding that contain only a small amount of ineligible services without expending significant fund resources working with applicants to determine what part of the discounts requested is associated with eligible services. It also provides an incentive to applicants to eliminate ineligible services from their requests before submitting their applications, further reducing the Administrator’s administrative costs. Accordingly, we add section 54.504(c)(1) to our rules as provided in Appendix B.

41. We decline to adopt one suggestion that would require SLD to inform an applicant that its application is about to be rejected under the 30 percent procedure and allow that applicant to provide evidence to refute SLD’s determination. Applicants bear the burden of ensuring that the items requested are eligible for support under the program rules. Implementation of such a proposal would result in greater administrative costs and burden, thereby defeating the primary purpose of this policy. Moreover, the applicant still has an opportunity to refute SLD’s determination by availing itself of the appeals process.

C. Choice and Timing of Payment Method

42. Background Under existing law and Commission procedure, the Administrator of the universal service support mechanism does not provide funds directly to schools and libraries, but rather, provides funds to eligible service providers who offer discounted services to eligible schools and libraries. Under existing procedures, service providers and applicants are advised to work together to determine whether the applicant will either (1) pay the service provider the full cost of services, and subsequently receive reimbursement from the provider for the discounted portion, after the provider receives reimbursement through the Billed Entity Applicant Reimbursement (BEAR) process, or (2) pay the non-discounted portion of the cost of services, with the service provider seeking reimbursement from the Administrator for the discounted portion. Currently, service providers reimbursing billed entities via the BEAR process must remit the discount amount authorized by the Administrator to the billed entity within ten days of receiving the reimbursement payment from the Administrator and prior to tendering or making use of the payment from the Administrator.

43. In the Schools and Libraries NPRM, we sought comment on certain problems that have arisen in connection with the BEAR payment method. Because it is not clear in our rules whether the provider or the applicant may make the final determination of which of the two payment processes to pursue, we observed that the potential exists for service providers to insist that applicants to which they provide services use the BEAR method of paying the upfront costs, and later seeking reimbursement. Indeed, some providers require recipients to use the BEAR form. We also noted that, in certain cases, services providers using the BEAR method had, after receiving the discount check from the Administrator, failed to remit this payment to the applicant until well past the ten-day limit. In response to these problems, we sought comment on whether we should mandate that all service providers give applicants a choice between paying a discounted price and using the BEAR payment method. We also sought comment on whether we should expressly provide in our rules that service providers are required to remit BEAR payments to the applicants within 20 days of having received them, in order to improve enforcement of the BEAR payment remittance deadline.

44. Discussion We first conclude that we should adopt a rule requiring service providers to give applicants the choice each funding year either to pay the discounted price or to pay the full price and then receive reimbursement through the BEAR process. In addition, we find that the period for remittance of the BEAR payment should be 20 days. Accordingly, we amend section 54.514 of our rules as set forth in Appendix B.

45. Some commenters argued that the choice of payment method should ultimately be made by the service provider, asserting that a mandate requiring all providers to adopt billing systems capable of handling both payment methods would impose significant financial and administrative burdens, particularly on small providers. However, the vast majority of commenters that responded to the Schools and Libraries NPRM supported the Commission’s proposal. Numerous commenters noted instances of services providers requiring applicants to use the BEAR method.

46. We find that providing applicants with the right to choose payment method is consistent with section 254. Although section 254(h)(1)(B) requires that telecommunications carriers providing discounted service be permitted to choose the method by which they receive reimbursement for the discounts that they provide to schools and libraries, i.e., between receiving either a reimbursement for the discount or an off-set against their obligations to contribute to the universal service fund, the statute does not require that they be permitted to choose the method by which they provide those discounts to the school or library in the first place.

47. In addition, we find that providing applicants with the right to choose which payment method to use will help to ensure that all schools and libraries have affordable access to telecommunications and Internet access services. The Commission previously noted in the Universal Service Order that “requiring schools and libraries to pay in full could create serious cash flow problems for many schools and libraries and would disproportionately affect the most disadvantaged schools and libraries.” The comments in the present record have confirmed that many applicants cannot afford to make the upfront payments that the BEAR method requires. In light of the record before us, we conclude that the potential harm to schools and libraries from being required to make full payment upfront, if they are not prepared to, justifies giving applicants the choice of payment method.

48. As with any agreement, one way that applicants could memorialize the particular payment method chosen would be to place the agreement in the service agreement, or, where there is no written service contract, in a separate agreement. Although applicants are not required to take such action, it has been suggested that doing so would decrease the number of customer complaints and strengthen the Administrator’s ability to take action for compliance failures.

49. Once an applicant has made and memorialized its choice for a funding year, the applicant may not unilaterally shift from one form of payment to the other within that funding year. Commenters argued that, in cases where the service begins before the Administrator makes its funding decision, applicants should be able to make discounted payments and then shift to BEAR payments after the funding decision is issued. We find that the administrative costs of such a procedure exceed the limited benefits to the applicant. Furthermore, service providers are under no obligation to provide discounts or reimbursements until a funding decision is approved, and we therefore find that it would be inappropriate to require providers to offer discounted service before any funding decision is made to authorize such discounts.

50. In response to service providers that argue that such a change will result in significant administrative costs to them, we reiterate that it is consistent with section 254 to provide applicants with the right to choose their payment method. Nevertheless, we anticipate that applicants and service providers will be able to work together in order to determine which payment method is most suitable. For example, a small carrier may enter into an agreement with a school district to provide telecommunications services. Under this contract, the payments could change from month to month based on usage. If the costs of instituting a new billing system to account for the changing levels of discounted service are significant, and the service provider is going to pass on the costs of such a system to the school district, the parties may find it more appropriate to negotiate a set discounted amount to be billed each month, with a true-up bill at the end of the contract. In recognition, however, of potential changes to billing systems that some providers may need to undertake in order to allow any applicant to elect the BEAR process, this rule change concerning election of payment type will be effective for the start of Funding Year 2004.

51. We also conclude that we should adopt a rule expressly requiring service providers to remit BEAR payments to the applicant within 20 days after receipt of such payments from the Administrator. BEAR payments are reimbursements for services that have already been provided to and paid for by a school or library. The structure of the schools and libraries support mechanism necessitates that reimbursement must flow to the applicant through the services provider. BEAR payments are not the property of the service provider, which has been paid in full. The Administrator has received many complaints about service providers failing to remit the BEAR payments in a timely fashion or, in some cases, at all. According to the Administrator, formalizing the remittance requirement in a rule would strengthen its ability to ensure compliance. The majority of commenters found that 20 days is an appropriate period for remittance. We therefore adopt a rule requiring a provider who receives a BEAR check from the Administrator to remit payment to the applicant within 20 days of receipt. Because providers are already required to remit BEAR payments within a limited timeframe, and thus should not need to implement major billing system changes, this rule change, like other rule changes unless otherwise noted, will be effective upon publication in the Federal Register.

D. Appeals Procedure

52. Background In this section we address several issues regarding the appeals procedure. First, in the Eighth Order on Reconsideration, the Commission established a process by which aggrieved parties could seek review from the Commission of decisions of the Administrator. Under program rules, any party aggrieved by a decision of any Division of the Administrator may appeal the decision of a Division within 30 days of the date of the decision to the relevant Committee governing that Division. The time for filing an appeal with the Commission is tolled during the pendency of the appeal before the Committee. Once the Committee has issued a decision on the appeal, the party then has up to 30 days to appeal that decision to the Commission. Alternately, the party may file an appeal directly with the Commission within 30 days of the date of the issuance of the decision. In either case, the 30-day time limit for filing an appeal commences on the date of the decision and runs until the filing of the appeal. In each case, an appeal is deemed filed on the date that it is received, not the date it is postmarked. Due to disruptions in the reliability of the mail service, however, we extended the appeal filing period on an emergency basis to 60 days for requests seeking review of decisions issued on or after August 13, 2001.

53. In January 2002, the Commission created a new docket, CC Docket No. 02-6, to address issues relating to the schools and libraries program. This new docket, the schools and libraries universal support mechanism docket, was launched with the Schools and Libraries NPRM. The development of this docket facilitates the review of material by Commission staff and outside parties because it isolates schools and libraries material from the extremely large general universal service fund dockets, CC 97-21 and CC 96-45.

54. In the Schools and Libraries NPRM, we sought comment on whether to amend our rules to extend permanently the time limit for filing an appeal with the Committee of the Schools and Libraries Division and the time limit for filing an appeal with the Commission from 30 to 60 days. We also sought comment on whether we should treat appeals to the Administrator or to the Commission as having been received on the date they are postmarked rather than the date they are filed. We noted that this change would depart from the Commission practice for filings in general, but would make the appeal procedure consistent with the Administrator's practice of treating FCC Form 471 applications and other forms as having been filed as of the postmark date.

55. Deadline Extension In the first four funding years of the school and libraries universal service support mechanism, twenty-two percent of all appeals to the Commission were dismissed as being untimely filed. In addition, the Administrator states that eighteen percent of all appeals filed with the Administrator for Funding Year 2001 were dismissed as being outside of the 30-day period. In light of this information, we sought comment on how to modify the current appeals procedures.

56. We agree with commenters that it is appropriate to increase the time limit for filing initial appeals with the Administrator and with the Commission to 60 days. Unlike many parties that typically practice before the Commission, many applicants in this program have no experience with regulatory filing processes. Thus the 30-day time period is often not adequate to allow potential petitioners to gather the documents and synthesize the arguments needed to file pleadings in order to challenge funding decisions. Commenters suggest that extending the filing period meets the goals of improving program operations and ensuring equitable distribution of benefits. Commenters suggest that given schools’ and libraries’ unique resource limitations, the extension of time for filing appeals will also provide applicants an opportunity to review the relevant decision and determine whether there are valid bases for appeal. We conclude that the time limit for filing an initial appeal with the Administrator and with the Commission should be extended to 60 days. We therefore amend section 54.720(a)-(d) of our rules.

57. Postmark We also agree with commenters that we should treat appeals to the Administrator or the Commission has having been received on the date that they are postmarked rather than the date they are filed. Commenters note that this change would be consistent with other program filing deadlines. For example, such a change would make the appeal procedure consistent with the Administrator’s practice of treating FCC Form 471 applications as having been filed as of the postmark date. In cases where a postmark is unclear or illegible, the Commission will require the applicant to submit a sworn affidavit stating the date that the appeal was mailed. Given this possibility, we continue to encourage parties to file appeals electronically, in order to ensure timely submission. In addition, we agree with commenters that using the postmarked date furthers the goals of improving program operation and ensuring a fair and equitable distribution of the benefits of the program. Thus, we find that it is consistent with public interest that we treat appeals to the Administrator or the Commission as having been filed on the date they are postmarked. We therefore add a new section 54.720(e) to our rules.

58. Docket Number Change We adopt a minor procedural amendment conforming our rules to reflect the change in docket numbers for filing appeals. Specifically, we change the wording of section 54.721, which describes the filing requirements for requests for reviews for the entire Universal Service program, to replace the last line of paragraph (a) as follows: instead of stating “and shall reference FCC Docket Nos. 97-21 and 96-45,” the line shall read “and shall reference the applicable docket numbers.” The docket number for schools and libraries appeals is CC Docket No. 02-6, and the docket number for Rural Health Care support mechanism appeals is WC Docket No. 02-60. Petitioners should reference these docket numbers when filing pleadings with the FCC.

E. Funding of Successful Appeals

59. Background Each funding year, the Administrator sets aside a portion of the funds available that year for the schools and libraries universal service mechanism to ensure that sufficient funds will be available for any appeals that may be granted by the Administrator or the Commission. The Administrator calculates this reserve amount, in part, by generating a prediction of the percentage of its decisions that will be reversed based on historical experience. Because the prediction may underestimate the actual number of reversed decisions, it is possible that the appeal reserve fund in a particular year will ultimately be inadequate to fund all successful appeals in that year, although this has not happened to date.

60. In the Eleventh Reconsideration Order and Further Notice, the Commission proposed certain rules establishing funding priorities for the Administrator to apply when distributing funds from the appeal reserve to schools and libraries that successfully appeal decisions of the Administrator. Specifically, the Commission proposed that the Administrator should first fund all Priority One appeals, and then allocate any remaining funds in the appeal reserve to Priority Two appeals in order of descending discount rate. The Commission further proposed that if funds were not available for all Priority One appeals, then all funding should be allocated to Priority One appeals on a pro-rata basis. To ensure correct distribution of funds to Priority One appeals, the Commission proposed that the Administrator should wait until a final decision has been issued on all Priority One service appeals before allocating funds to such services on a pro-rata basis.

61. In the Schools and Libraries NPRM, we sought further comment on the funding of successful appeals. Specifically, we asked whether, instead of adopting the proposal set forth in the Eleventh Reconsideration Order and Further Notice, we should fully fund successful appeals to the same extent that they would have been funded in the ordinary application process. We also sought comment on the source of funding in the unlikely event that the funds allocated for successful appeals were not sufficient to fund all such successful appeals. We asked for comment on what effect funding of successful appeals in the face of a depleted appeals reserve would have on the Administrator’s allocation of schools and library funds to according Priority One and Priority Two requests.

62. Discussion Based on the record, we conclude that all successful appeals should be awarded discounts to the extent they would have been had the discounts been awarded through the normal funding process. We further conclude that the Administrator should not wait to grant post-appeal funding until all appeals have been decided, but should instead fund applications if and when they are granted. We further find it appropriate to adopt a rule that authorizes using funds budgeted for future funding years, if the Administrator-set appeals reserve is inadequate to award discounts to all successful appeals. We recognize that utilizing such funds will reduce the total amount of funding available in subsequent funding years. However, we believe that this result is necessary in order to assure that no applicants are prejudiced because they were awarded discounts through the appeal process rather than through the initial application process.

63. The few commenters that addressed the use of funding from future years were mixed in their assessment. In particular, we disagree with commenters such as the Council of Chief State School Officers, who state that using funding budgeted for future years would penalize applicants in the next funding year. We conclude that the inequity of failing to award discounts for a timely appeal far outweighs the impact granting such appeals would have in reducing the overall available funding in future funding years. Indeed, any modest reduction in the total amount of funds budgeted for future funding years is equally distributed among all successful applicants. In contrast, the alternative imposes any shortfall on an individual applicant, who, after successfully appealing, has done nothing to merit the denial of funding. In balancing these outcomes, we conclude the more equitable solution is to spread the impact by using funds budgeted for future funding years, should the appeal reserve be exhausted. Consequently, we adopt a rule that authorizes USAC to use funds budgeted from subsequent funding years to fund discounts for successful appeals in the unlikely case that the appeals reserve is exhausted.

F. Suspension and Debarment

64. Background Since the inception of the schools and libraries support mechanism, the Commission and the Administrator have worked to strengthen and develop measures to eliminate the potential for waste, fraud, and abuse so that schools and libraries are able to benefit from the discounts provided for under section 254. It is important that the application and disbursement process be as streamlined and straightforward as possible for participants. At the same time, it is vital to the integrity of the program that there are sufficient procedural safeguards to ensure accountability.

65. In the Schools and Libraries NPRM, the Commission observed that the Administrator has exercised its existing authority to combat waste, fraud, and abuse. It is essential, however, that we continue to improve our efforts. Thus, in the Schools and Libraries NPRM, the Commission sought comment on various possible approaches to limit waste, fraud, and abuse. It noted that while section 503(b) of the Act permits us to initiate forfeiture proceedings against those that willfully or repeatedly fail to comply with statutory and regulatory requirements, there are no provisions in the rules to bar such entities or individuals from participating in the program. The Commission sought comment on whether to adopt rules barring applicants, service providers, and others (such as consultants) that willfully or repeatedly fail to comply with program rules from involvement with the program for a period of years. The Commission asked for comment on, for example, standards for barring such entities, the appropriate period of debarment, and whether the debarment might apply to individuals.

66. Discussion We agree with the majority of commenters that we should adopt rules to prevent bad actors from receiving the benefits associated with the schools and libraries support mechanism. By prohibiting bad actors from involvement with the schools and libraries support mechanism, we will deter waste, fraud, and abuse, thus helping to ensure that support is used for schools’ and libraries’ access to advanced telecommunications and information services consistent with section 254. It is not our intention to use this debarment to punish. Rather, debarring applicants, service providers, consultants, or others that have defrauded the government or engaged in similar acts through activities associated with or related to the schools and libraries support mechanism is necessary to protect the integrity of the program. We conclude that these debarment procedures are prudent and consistent with our goal of ensuring that the universal service support mechanisms operate without waste, fraud, or abuse.

67. We conclude that persons convicted of criminal violations or held civilly liable for certain acts arising from their participation in the schools and libraries support mechanism shall be debarred from activities associated with or related to the schools and libraries support mechanism for a specified period, absent extraordinary circumstances. The debarment rules we adopt are informed by the nonprocurement debarment regulations for federal agencies, which do not apply to independent agencies such as the Commission. Specifically, we find that persons convicted of, or held civilly liable for, the attempt or commission of criminal fraud, theft, embezzlement, forgery, bribery, falsification or destruction of records, making false statements, receiving stolen property, making false claims, obstruction of justice, or other fraud or criminal offense arising out of activities associated with or related to the schools and libraries universal service support mechanism shall be debarred from involvement with the schools and libraries support mechanism for a period of three years. Where circumstances warrant, a longer period of debarment may be imposed if the extension is necessary to protect the public interest. In the case of multiple convictions or judgments, the Commission shall determine based on the facts before it whether debarments shall run concurrently or consecutively.

68. A person subject to debarment, or a person that has contracted or intends to contract with a person subject to debarment to provide or receive services in connection with the schools and libraries support mechanism, may file arguments in writing and supported by documentation in opposition to the proposed debarment action or supporting a reduction in the period or scope of debarment. The Commission shall consider any such request, and may, upon the filing of arguments against the proposed suspension or debarment by an interested party or on its own motion, grant such a request for extraordinary circumstances. For example, reversal of the conviction or civil judgment upon which the debarment was based shall constitute extraordinary circumstances.

69. In light of the serious nature of a conviction or civil judgment relating to participation in the support mechanism, upon becoming aware of a person’s criminal conviction or civil judgment under the specified circumstances, the Commission shall suspend the person from activities associated with or related to the schools and libraries support mechanism. Suspension is an immediate but temporary measure pending a final determination of debarment. Suspension will help to ensure that a person that has been convicted or held civilly liable for behavior with respect to the schools and libraries support mechanism cannot continue to benefit from the mechanism pending resolution of the debarment process. The Commission shall send notice to the person’s last known address by certified mail, return receipt requested, and shall publish notice in the Federal Register. Suspension is effective immediately upon the earlier of the person’s receipt of such notice or publication in the Federal Register.

70. The notice of suspension shall include notice of debarment proceedings. Such notice shall (1) give the reasons for the proposed debarment in terms sufficient to put the person on notice of the conduct or transaction(s) upon which it is based and the cause relied upon, namely, the entry of a criminal conviction or civil judgment; (2) explain the applicable debarment procedures; (3) describe the potential effect of debarment. A person subject to debarment or a person that has contracted or intends to contract with a person subject to debarment to provide or receive services in connection with the schools and libraries support mechanism, that elects to file arguments in opposition to the suspension and proposed debarment, must do so with any relevant documentation within 30 days after receiving notice or publication in the Federal Register, whichever is earlier. Any suspended person or person who has contracted or intends to contract with a suspended person also may request, in writing and supported by documentation, reversal of the suspension action or a reduction in the period or scope of suspension. The Commission shall consider such a request, but such action will not ordinarily be granted. Within 90 days of receipt of any such request, the Commission, in the absence of extraordinary circumstances, shall provide the person prompt notice of the decision to debar, and shall publish the decision in the Federal Register. Debarment shall be effective upon the earlier of receipt of notification or publication in the Federal Register.

71. Consistent with the federal agency regulations, we define “person” as “[a]ny individual, corporation, partnership, association, unit of government or legal entity, however organized.” Under this definition, persons may include applicants, service providers, consultants, or others engaged in activities associated with or related to the support mechanism.

72. Consistent with the federal agency regulations, suspension or debarment of a corporation, partnership, association, unit of government or legal entity, however organized, defined as a “person” under these regulations, constitutes suspension or debarment of all its divisions and other organizational elements from all activities associated with or related to the schools and libraries support mechanism for the debarment period, unless the suspension or debarment decision is limited by its terms to one or more specifically identified individuals, divisions, or other organizational elements or to specific types of transactions.

73. Consistent with the federal agency regulations, we define “conviction” as “a judgment or conviction of a criminal offense by any court of competent jurisdiction, whether entered upon a verdict or a plea, including a plea of nolo contendere” and “civil liability” or “civilly liable” as “the disposition of a civil action by any court of competent jurisdiction, whether entered by verdict, decision, settlement with admission of liability, stipulation, or otherwise creating a civil liability for the wrongful acts complained of, or a final determination of liability under the Program Fraud Civil Remedies Act of 1988 (31 U.S.C. §§ 3801-12).” We further conclude that, for purposes of these rules, “activities associated with or related to the schools and libraries support mechanism” include the receipt of funds or discounted services through the schools and libraries support mechanism, or consulting with, assisting, or advising applicants or service providers regarding the schools and libraries support mechanism.

74. A conviction or civil judgment in the specified circumstances therefore automatically results in suspension and the initiation of debarment proceedings, providing a clear and stringent response on the part of the Commission and serving to deter waste, fraud, and abuse in the program. Although the governmentwide rules provide that agencies “may” debar or suspend persons convicted or held civilly liable, we conclude that a rule requiring the Commission to suspend and debar such persons absent extraordinary circumstances will better serve the Commission’s goal of limiting waste, fraud, and abuse. In light of our statutory obligation to preserve and advance universal service, we believe it appropriate to set a very high threshold for parties seeking to persuade us that debarment is not warranted in circumstances where a court of competent jurisdiction has concluded that person has committed some form of fraud related to the schools and libraries program. We conclude that under our rules the Commission shall debar persons convicted or held civilly liable after immediate suspension, absent extraordinary circumstances. These automatic actions in the clear circumstances where legal proceedings have concluded with due process are an appropriate and prudent means of maintaining the integrity of the schools and libraries support mechanism.

75. We recognize that where a service provider is debarred, an applicant relying on that service provider for discounted services may need to change service providers for that funding year in order to continue to receive the benefits of the support mechanism. Under existing USAC procedures, after an application has been approved and before the last day for invoicing, an applicant may change its service provider. Consistent with these procedures, therefore, applicants whose service providers have been debarred after an application has been approved may change service providers for that funding year.

76. The Enforcement Bureau shall undertake suspension and debarment proceedings under this section. The Wireline Competition Bureau shall make any necessary changes to FCC forms, including a notification that a person convicted of or held civilly liable for the conduct specified above shall be suspended and debarred absent extraordinary circumstances. We also direct the Wireline Competition Bureau to oversee the implementation and coordination of debarment procedures and policies with the Administrator, including, but not limited to, the publication and maintenance of a list on the Administrator’s web site of persons suspended or debarred from the program. We direct the Wireline Competition Bureau to ensure that the Administrator implements procedures to ensure that any person who has been suspended or debarred not benefit from the schools and libraries support mechanism for the specified period of time.

77. These rules constitute an important step in continuing to ensure program integrity. We are committed to considering other deliberate and appropriate measures in order to provide for compliance with statutory requirements and our rules, thereby ensuring that the benefits of this universal service support mechanism are available to the largest number of schools and libraries on an equitable basis. In the accompanying Further Notice, we seek further comment on whether to debar persons in other circumstances and related issues.

G. Utilization of Unused Funds

78. Background In the Schools and Libraries NPRM, we sought comment on what to do with undisbursed funds, to the extent that they remain despite our reduction efforts. This question was addressed recently in the First Order in this docket. We also sought comment to develop a record on the reasons why applicants may fail to fully use committed funds under the program. In addition, we sought comment on whether there are modifications to the application and funding disbursement process that would reduce the level of unused funds in each funding year.

79. Discussion We decline, at this time, to adopt additional measures to reduce unused funds. The First Order adopted a framework for the treatment of unused funds from the schools and libraries universal service support mechanism. In that Order, we determined that it was in the public interest to take immediate action to stabilize the contribution factor, and that beginning no later than the second quarter of 2003, any unused funds from the schools and libraries support mechanism shall, consistent with the public interest, be carried forward for disbursement in subsequent funding years of the schools and libraries support mechanism.

80. As noted below, the Administrator has taken certain measures that will also address the issue of unused funds from the schools and libraries program. We find that these changes will help improve the disbursement of program funds. In addition, we continue to explore procedural and programmatic changes to the schools and libraries support mechanism that may help reduce the amount of funds that are not disbursed. We find that such actions will help us to most effectively implement the goals of section 254 of the Act.

81. Commenters noted that during the application process, applicants have difficulty predicting needs, usage, and non-contracted rates. Therefore, applicants may apply for more funding than is actually needed. Commenters also cited certain factors beyond the program’s control that contribute to unclaimed funds. Indeed, the Administrator and the Commission are aware of these issues. In an effort to reduce the amount of unused funds, starting with Funding Year 2001, the Administrator is issuing funding commitments slightly in excess of the $2.25 billion funding cap. The Administrator reports that as of October 28, 2002, it had committed approximately $2.257 billion for Funding Year 2001. Specifically, the Administrator is basing overcommitments on past levels of unused funds, allowing a margin for error.

82. Commenters also state that some committed funds go unused because of late funding commitment decisions. We agree with commenters that receiving funding commitment decisions earlier in the process would help reduce the amount of unused funds. The Administrator has continued to improve its processing. An increasing percentage of applicants now receive funding decisions earlier in the funding cycle. In addition, the Administrator has created a new website where the public, applicants and providers, can view funding commitment data the day after it is released, rather than having to wait for the delivery of funding letters. We believe that each of these changes will help prevent the likelihood of waste by improving the disbursement of program funds.

83. In addition, several commenters noted that there is no incentive for applicants to turn committed funds back to USAC when an applicant realizes that it will not use the full committed amount. Some commenters also stated that the Form 500, which applicants may use to notify the Administrator that committed funds are no longer required, is an ineffective tool for commitment cancellation. The form is still a relatively new addition to the program. At this time, we do not believe that it is appropriate or necessary to change the Form 500. As with all aspects of the program, should the Administrator have recommendations about how to improve the Form 500 or related processes, the Administrator will bring these issues to our attention. We trust that as applicants become more familiar with the form and are better able to judge their funding supply through data newly provided on the Administrator’s website, applicants will inform the Administrator when they will not fully use committed funds.

H. Conforming Rule Changes

84. Background Under the Act, only eligible schools and libraries may receive universal service funds under the schools and libraries universal service mechanism. To be eligible, a school must, among other things, meet the statutory definition of “elementary school” or “secondary school” contained in section 254(h)(7) of the Act. Section 254(h)(7) provides that the terms “elementary school” and “secondary school” mean elementary schools and secondary schools as defined in paragraphs (14) and (25) of section 14101 of the Elementary and Secondary Education Act of 1965 (Education Act), as codified at 20 U.S.C. § 8801(14) and 8801(25), respectively.

85. At the time that section 254 was added to the Act, an elementary school was defined at 20 U.S.C. § 8801(14) as “a nonprofit institutional day or residential school that provides elementary education, as determined under State law.” A secondary school was defined at 20 U.S.C. § 8801(25) as “a nonprofit institutional day or residential school that provides secondary education, as determined under State law, except that such term does not include any education beyond grade 12.” In the Universal Service Order, the Commission concluded that all schools that fall within the definition contained in the Elementary and Secondary Education Act of 1965 and that meet the other criteria for eligibility established in section 254 should be eligible. Thus, the Commission’s rules implementing section 254 directly reflected the statutory definitions in the Education Act, defining elementary school as “a nonprofit institutional day or residential school that provides elementary education, as determined under State law” and stating that a secondary school was “a non-profit institutional day or residential school that provides secondary education, as determined under State law,” but that “[a] secondary school does not offer education beyond grade 12.” The Commission further provided expressly that “[o]nly schools meeting the statutory definitions of ‘elementary school,’ as defined in 20 U.S.C. 8801(14), or ‘secondary school,’ as defined in 20 U.S.C. 8801(25) . . . shall be eligible for discounts on telecommunications and other supported services under this subpart.”

86. Following the Commission’s implementation of section 254, Congress made certain statutory changes to the definitions of “elementary school” and “secondary school” in the Education Act, most recently in the No Child Left Behind Act of 2001. Currently, the Education Act defines “elementary school” as “a nonprofit institutional day or residential school, including a public elementary charter school, that provides elementary education, as determined under State law,” and “secondary school” as “a non-profit institutional day or residential school, including a public secondary charter school, that provides secondary education, as determined under State law.” The definitions for elementary school and secondary school have also been moved to 20 U.S.C. § 7801(18) and 7801(38), respectively.

87. Discussion We adopt minor changes to our rules to conform our definitions of eligible schools to the current definitions of and citations for “elementary school” and “secondary school” following the passage of the No Child Left Behind Act. First, we amend the definition of elementary school at section 54.500(b) by adding, after “residential school,” the phrase “including a public elementary charter school,” and the definition of secondary school at section 54.500(j) by adding, after “residential school,” the phrase “including a public secondary charter school.”

88. In so doing, we are not expanding the scope of either definition because public elementary and secondary charter schools were already eligible under the original definitions. Under these definitions, the Commission looked to applicable State law to determine which entities qualified as public elementary and secondary schools. Thus, where applicable State laws provided for public elementary and secondary charter schools, such schools were eligible for discounts under the old definition. The regulatory change merely makes this eligibility explicit.

89. Second, we amend section 54.501(b)(1) of our rules, to reflect the new citations for the elementary school and secondary school definitions following the passage of the No Child Left Behind Act. Specifically, we replace the citations to 20 U.S.C. § 8801(14) and 8801(25) with citations to 20 U.S.C. §§ 7801(18) and 7801(38), respectively. Because the new provisions are substantively the same as the original definitions, we conclude that all of these rule changes are minor and technical, and we therefore find good cause to conclude that notice and comment procedures of the Administrative Procedure Act (APA) are unnecessary.

I. Deletion of Obsolete Rules

90. The Biennial Regulatory Review 2000 Staff Report (Staff Report) recommended that sections 54.701(b) through (e) of our rules, which mandate the merger of the Schools and Libraries Corporation and the Rural Health Care Corporation into the Universal Service Administrative Company, be deleted. Given that the merger has been completed, the Staff Report concluded that these transitional provisions were no longer applicable. We now adopt the recommendations of the Staff Report and delete section 54.701(b) through (e), and renumber current provisions 54.701(f) through (h) as 54.701(b) through (d). Again, because the rule sections in question are now obsolete, we conclude that these rule changes are minor and technical, and we therefore find good cause to conclude that notice and comment under the APA is not necessary.

I. INTRODUCTION