+ Page 37 + ----------------------------------------------------------------------------- ####### ######## ######## ########### ### ### ## ### ## # ### # Interpersonal Computing and ### ### ## ### ## ### Technology: ### ### ## ### ### An Electronic Journal for ### ######## ### ### the 21st Century ### ### ### ### ### ### ### ## ### ISSN: 1064-4326 ### ### ### ## ### April, 1997 ####### ### ######## ### Volume 5, Number 1-2, pp. 37-62 ----------------------------------------------------------------------------- Published by the Association for Educational Communications and Technology Additional support provided by Georgetown University University of Maryland, Baltimore County and Northern Arizona University This article is archived as LEWIS IPCTV5N2 on LISTSERV@LISTSERV.GEORGETOWN.EDU ----------------------------------------------------------------------------- UNIVERSAL SERVICE FOR SCHOOLS: INSIGHTS INTO THE JOINT BOARD'S RECOMMENDED DECISION Patricia Figliola Lewis University of Florida INTRODUCTION President Clinton signed the Telecommunications Act [1] ("the Act") in February 1996, fundamentally changing the telecommunications industry. One of the Act's most important provisions codified and expanded the ad hoc national universal service policy developed and administered by the Federal Communications Commission (FCC).[2] This policy has been used to provide basic telephone service at affordable rates to the greatest number of American homes, regardless of location or income. The FCC accomplished the goals of this policy by providing subsidies to local telephone companies providing service to high-cost areas [3] and low- income customers.[4] In the years leading up to the passage of the Act, however, public interest and educational groups advocated expanding the definition of "universal service" to include more advanced services and to offer subsidies to a greater range of recipients, such as schools. The 1996 Act did just that. It required not only that schools be included in the general universal service mechanism, but that the FCC consider making other services available to schools as well. Following the signing of the Act, the FCC initiated a rulemaking proceeding and established a Federal-State Joint Board on Universal Service ("Joint Board") to consider comments from the public.[5] That Joint Board released its Recommended Decision on this matter in November 1996.[6] Following a comment period on the recommendations,[7] the FCC will release its final rules in May 1997. + Page 38 + This paper begins by providing a summary of the Telecommunications Act of 1996 as it relates to universal service for schools. It then outlines the FCC's rulemaking proceeding on that issue, summarizing and explaining key points of the comments in the proceeding and the Joint Board's Recommended Decision. The paper next identifies the points of agreement and disagreement within the Recommended Decision and concludes with an analysis of those points. THE 1996 TELECOMMUNICATIONS ACT AND UNIVERSAL SERVICE The Telecommunications Act of 1996 wrote into law for the first time a requirement for universal service. The Act continues to support the provision of "core" services to the traditional universal service recipients - service providers in high-cost areas and low-income consumers - under the general definition of universal service. Core services are those services determined by the FCC to be: (1) Essential to education, public health, or public safety (2) Subscribed to by a "substantial majority of residential customers" (3) Deployed in the public telecommunications network by telecommunications carriers (4) Consistent with the "public interest, convenience, and necessity."[8] The Act, however, also contained provisions that expand universal service support to include a new group: "public institutional users,"[9] including schools, libraries, and rural health care providers.[10] These provisions require that, in addition to the core services, the FCC consider designating additional services to be made available at a discount to schools.[11] The Act also directed the FCC to appoint a Joint Board to review current universal service policies and adapt those policies to the requirements of the Act. The Joint Board was to be composed of three FCC Commissioners, four state public service commission representatives nominated by the National Association of Regulatory Utility Commissioners, and one utility consumer advocate nominated by the National Association of State Utility Consumer Advocates. Summary of Universal Service Provisions Affecting Access for Schools Section 25412 is the primary universal service provision of the amended Act. Section 254(h), Telecommunications Services for Certain Providers, contains two of the four paragraphs that apply specifically to providing services to schools: Universal Service Principles - ß 254(b)(6). The FCC must consider the issue of universal service for schools when it develops its universal service policies.[13] + Page 39 + Special Services - ß 254(c)(3). In addition to the core services (i.e., in the general definition of universal service), the FCC may designate additional services for schools.[14] Educational Providers and Libraries - ß 254(h)(1)(B). All telecommunications carriers must provide services to schools at discounted, affordable rates.[15] Advanced Services - ß 254(h)(2)(A). The FCC must establish competitively neutral rules to enhance access to advanced telecommunications and information services for all school classrooms.[16] The Advanced Services paragraph introduces several terms that have specific meaning within the context of the Act: * Competitive neutrality requires that the FCC adopt rules that will not favor one company or one technology over another. * Telecommunications services transmit - and only transmit - voice or data. These services are categorized as either basic or advanced. An example of a basic telecommunications service is the telephone line in the average home; an advanced service, however, is a capable of carrying large amounts of data at very high speeds. Both basic and advanced telecommunications services are regulated by the FCC. * Information services modify, manipulate, or store the data being transmitted. Examples of information services are Internet access and voice mail. Information services generally require some form of computing power either at the telephone company central office or at the customer's premises to manipulate the data. Information services are unregulated; anyone may produce and sell them. * The specific mention of classrooms is important to the discussion of whether to provide universal service support for internal connections as it connotes providing services to actual classrooms rather to simply the schoolhouse door. Two other sections of the 1996 Act, Advanced Telecommunications Incentives [17] and the National Education Technology Funding Corporation ("Corporation") [18] are also intended to promote the deployment of advanced services to schools: [19] * Advanced Telecommunications Incentives requires the FCC to initiate a notice of inquiry within 30 months of enactment of the Act "concerning + Page 40 + the availability of advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classroom.)" [20] If the FCC's inquiry reveals that these services are not being deployed in a "reasonable and timely" fashion, it is instructed to "take immediate action to accelerate deployment of such capability" using its regulatory powers.[21] * The Act also established the National Education Technology Funding Corporation. The purpose of the Corporation is to stimulate private investment in education technology infrastructure and provide loans to state education technology agencies. Additionally, the Corporation is charged with establishing criteria to encourage states to invest in interactive high capacity networks capable of providing audio, visual and data communications for schools.[22] THE FEDERAL COMMUNICATION COMMISSION'S NOTICE OF PROPOSED RULEMAKING ON UNIVERSAL SERVICE In March 1996, in accordance with the Act, the FCC issued a Notice of Proposed Rulemaking and Order Establishing Joint Board (NPRM) on universal service.[23] The NPRM requested comment on how to: (1) Define the goals and principles of universal service and the appropriate support mechanisms for residential users (core services) (2) Support universal service in high-cost areas (3) Define the goals and principles of universal service for public institutional telecommunications users (schools, libraries, and healthcare providers serving rural populations) and how to fund those services (4) Enhance access to advanced services for public institutional telecommunications users (5) Successfully transition from implicit to explicit [24] funding mechanisms (6) Administer the universal service fund. The NPRM also established the Federal-State Joint Board as directed by the 1996 Act. The Board members are FCC Chair Reed Hundt (Chair); FCC Commissioner Rachelle Chong; FCC Commissioner Susan Ness; Commissioner Julia Johnson of the Florida Public Service Commission; Commissioner + Page 41 + Kenneth McClure of the Missouri Public Service Commission; Washington Utilities and Transportation Commission Chair Sharon Nelson; Commissioner Laska Schoenfelder of the South Dakota Public Utilities Commission; and State of Missouri Public Counsel Martha Hogerty. The Joint Board was charged with making recommendations to the FCC as to how to interpret the Act's universal service provisions. Comments to the NPRM were due to the Joint Board in April 1996, and reply comments were due one month later. Then, in July 1996, the FCC issued a notice requesting further comment on seventy-two specific questions; responses to that notice were due in August. Twenty of the seventy-two questions were directly related to access for public institutional users, and of those twenty questions, three were particularly relevant to this discussion: (1) the extent to which the Joint Board should consider and rely upon Advanced Telecommunications Incentives and National Education Technology Funding Corporation to provide advanced services to [public institutional users];[25] (2) whether discounts should be available for a specified set of telecommunications services or for all services;[26] and (3) whether Telecommunications Services for Certain Providers should be interpreted to include discounts for internal connections, such as inside wire or wireless connections, to classrooms and what the estimated cost of internal connections would be.[27] THE JOINT BOARD'S RECOMMENDED DECISION ON UNIVERSAL SERVICE SUPPORT FOR SCHOOLS On November 8, 1996, the Joint Board released its 489-page Recommended Decision.28 The most significant issues addressed relating to universal service for schools were (1) the services to be made eligible for support, including Internet access; (2) whether to include discounts on internal connections; and (3) the funding methodology to be used to collect funds. The FCC has until May 1997 to formally adopt the document, either "as is" or with modifications. FCC and Joint Board Chair Reed Hundt has indicated that the recommendations will be adopted with few, if any, changes. + Page 42 + Services Eligible for Support In a separate section of the Recommended Decision, the Joint Board proposed that the definition of core services include: voice-grade access to the public switched network, with the ability to place and receive calls; touch tone or its functional equivalent; single-party service; access to emergency services; access to operator services; access to interexchange services; and access to directory assistance. [29] Its next step was to define the services to be made available to schools at a discount. In accordance with the Act, the Joint Board could have chosen to recommend that schools receive discounts on (1) only core telecommunications services; (2) core services plus some complement of additional services; or (3) all telecommunications services (including wireless). The Joint Board recommended the third option, that discounts be provided on all telecommunications services in accordance with both Educational Providers and Libraries [30] and Advanced Services:[31] "Advanced Services provides a broader framework [than Educational Providers and Libraries] for facilitating deployment of services to schools because the competitively neutral rules contemplated under that section are applicable to all service providers. The discounts mandated under Educational Providers and Libraries, in contrast, are limited to the provision of services by telecommunications carriers. The discounting of telecommunications services under Advanced Services will enable schools to have access to the broadest array of services possible."[32] The Joint Board stated that this guideline would provide schools the maximum flexibility to purchase whatever package of telecommunications services they believe would meet their telecommunications service needs most effectively and efficiently. The Board said that, "Empowering schools to choose the services best suited for their needs is critical to achievement of the important universal services goal of pervasive technology deployment and use in all schools, regardless of wealth and location."[33] The Joint Board rejected the proposal that support be provided only for core services after "careful reading of the statute and its legislative history."[34] It concluded that Congress clearly desired to permit schools to have access to and use of services beyond those designated as core services.[35] The Joint Board cited Special Services [36] which states that in addition to the services included in the general definition of universal service (core services), the FCC may designate additional services for schools.[37] The Joint Board further explained + Page 43 + this recommendation by saying that Congress had intended for the FCC and the Joint Board to take into account the special needs of K-12 schools.[38] The Joint Board rejected parties' recommendations to include the core services plus some complement of additional services for schools, in part because none of the parties recommended the same set of services. Since the commenters themselves could not determine what the appropriate package should be, the Joint Board decided to allow schools to choose for themselves. Additionally, in a rapidly changing technology environment, the Joint Board stated that it did not want to put itself and the FCC in the position of having to conduct regular rulemaking proceedings to update the list of approved services. The Joint Board also rejected the proposal that the use of wireless technologies should be discouraged. It stated that "all technologies have their advantages and disadvantages," and concluded that individual schools are in the best position to assess such costs and benefits with respect to their "individual needs and circumstances."[39] Internet Access. The Joint Board recommended that the Commission provide schools with discounts for Internet access, pursuant to Advanced Services.[40] It supported this recommendation by saying that it is not possible to separate the network transmission component of Internet access from the information service component.[41] The Joint Board believes that this access will provide schools with the necessary online access to the World Wide Web.[42] The Joint Board rejected arguments that Internet access be excluded because it is not a telecommunications service. Inside Connections The Joint Board recommended that schools receive discounts on charges for inside connections.[43] Such discounts, it stated, are permissible under the statutory provisions of Telecommunications Services for Certain Providers[44] and that the legislative history indicated the Congressional intent to allow schools to obtain internal connections at a discount. The Joint Board also found that Congress specifically recognized inside connections as critical for achieving the purpose of Telecommunications Services for Certain Providers,[45] and thus considered that schools receive universal service support for internal connections.[46] + Page 44 + Installation and Maintenance of Internal Connections is a Service. The Joint Board rejected arguments that inside connections are a "physical facilit[y]" rather than a telecommunications "service," and are therefore not eligible for universal service support.[47] The Joint Board held instead that "the installation and maintenance of such facilities are services" and that "the cost of the actual facilities may be relatively small compared to the cost of labor involved in providing internal connections."[48] Another argument used by the Joint Board to support universal service funding for internal connections related to the use of wireless internal connections, such as NII/SUPERNet.[49] For example, a student or teacher using a wireless telecommunications network would not be able to differentiate between connections between classrooms (intraschool) and connections between schools (interschool). It would seem to follow, then, according to the Joint Board: "that those wireless services would still represent services if school personnel also used them for communications between classrooms within a school rather than between schools and outside parties. There is nothing on the record or in the statute that would suggest any reason that such services are not eligible for universal service support. Yet if wireless intraschool connections are services eligible for a discount and Congress sought to ensure technological neutrality rather than favoring wireless services, it follows that schools purchasing wireline intraschool connections should also be permitted to apply discounts to those services."[50] Internal Connections Enhance Access to Advanced Telecommunications and Information Services. The Joint Board recommended that discounts for internal connections be provided under the authority of Advanced Services[51] and that "internal connections" be defined broadly to include "such items as routers, hubs, network file servers, and wireless LANs. . .."[52] The Joint Board also cited a letter from 26 Senators, including the four sponsors of the original language included in Telecommunications Services for Certain Providers,[53] to support its recommendation: "For schools, we believe that connecting the classrooms is necessary to truly enhance education so connectivity should be defined to include internal connections in ways that are technology neutral."[54] + Page 45 + Discount Methodology Before presenting its recommended discount methodology, the Joint Board explained the two reasons why it believed the prediscount service price to be a significant issue. The prediscount price is the total price that carriers will receive for the services they sell to schools. Schools will pay a discounted price, and the carrier will receive the difference between that total price and the discount price from the universal service fund. The prediscount price is, therefore, important to service providers as it will determine the total amount of compensation collected. The prediscount price will also affect the total amount that schools will pay, as they will have to pay a percentage of the prediscount price.[55] Discount Structure/Economically Disadvantaged Schools and Schools Located in High Cost Areas. The Joint Board recommended adopting a matrix of percentage discounts based on a school's level of economic disadvantage and whether it is located in a high-cost area.[56] It agreed with commenters who stated that "access to telecommunications and other covered services should not increase existing disparities between economically disadvantaged students and their more affluent peers."[57] Under the Joint Board's proposal, the least disadvantaged schools would receive discounts of between 20 and 25 percent on services depending on their location; the most disadvantaged schools would receive discounts of 90 percent regardless of their location. The Joint Board made a preliminary recommendation that the national school lunch program be used to determine a school's level of economic disadvantage and that discounts should be figured at the school, rather than district, level. It further recommended that schools or districts that do not participate in the national school lunch program be required only to certify the percentage of their students who would be eligible for the program if they did participate.[58] Regarding schools in high- cost areas, the Joint Board recommended instituting a "step" approach that would consider a school's location in allocating funds, but stated that the Commission should seek additional comments on this issue prior to adopting any final rule.[59] The Joint Board recommended providing support to schools based on a percentage discount mechanism, declining to recommend a 100 percent discount (free service) for any schools. It stated that the maximum 90 percent discount would be sufficient to enable even the most disadvantaged schools to purchase services,[60] encouraging both efficiency and accountability. First, requiring schools to pay a share + Page 46 + of the total cost of service should lead them to avoid unnecessary and wasteful expenditures because they would be unlikely to devote their pre-existing budgeted funds to purchases that they could not use effectively. Second, a percentage discount would encourage schools 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.[61] Fund Cap. In addition, based on the fact that universal service for schools is a new provision with no historical record of actual costs, the Joint Board recommended instituting an annual cap of $2.25 billion per year on the amount of funds available to schools be set. This amount is equal to approximately 1.5 percent of the total annual revenues of the "big three" long distance companies - AT&T, MCI, and Sprint.[62] It is less than .5 percent of the projected $500 billion converged or integrated telecommunications market.[63] Under the Joint Board's plan, any funds not disbursed in a given year could be carried forward and disbursed in subsequent years without regard to the cap. Conversely, a mechanism would be established to indicate when expenditures reached $2 billion, indicating funds were running low. If this were to occur, the Joint Board recommended instituting "rules of priority" that would give the highest priority for receiving funds to the most economically disadvantaged schools that had not yet received discounts from the universal service fund that year.[64] Funding Mechanisms for Schools Funding Sources. The Joint Board recommended that universal service funding for schools be drawn from both the interstate as well as intrastate revenues of providers of interstate telecommunications services.[65] Prior to the Act, funding for universal service was assessed solely on interstate revenues of long distance service providers. Additionally, in the Recommended Decision, the Joint Board recommended including both interstate and intrastate revenues only to fund universal service for public institutional users. Other universal service programs will continue to be supported through interstate revenues only. The Joint Board based its decision, in part, on comments that argued that including both funding sources would "eliminate the need for + Page 47 + complex separations schemes that are not employed by some of the contributing carriers."[66] The members rejected arguments that assessing intrastate revenues is outside the jurisdiction of the FCC and that assessing intrastate revenues would adversely affect state universal service programs.[67] The Joint Board declined to recommend that "information service providers" or "enhanced service providers" be required to contribute at this time. However, it did recommend that this issue be revisited "in the near future to take into account changes in technology and the regulatory environment."[68] For example, the FCC could determine, at a later, date, that Internet service providers (ISPs) should contribute to the fund. Offset versus Reimbursement. According the Joint Board, all service providers, including telecommunications carriers should be permitted to choose either reimbursement for services provided or an offset of the amount it is required to contribute.[69] As non-telecommunications carriers, such as ISPs, are not currently obligated to contribute to the universal service support mechanism, they would not be entitled to an offset. Non- telecommunications carriers providing eligible services to schools, therefore, would be able to receive only reimbursement from universal service support mechanisms.[70] Sections 706 and 708 The Joint Board concluded that Congress intended the FCC to conduct a separate rulemaking proceeding for Advanced Telecommunications Incentives.[71] In that section, Congress directed the Commission to initiate a notice of inquiry within 30 months after the enactment of the 1996 Act, and it further directed the Commission to complete that rulemaking proceeding within 180 days after its initiation. As these statutory deadlines differ from the deadlines imposed on the universal service rulemaking proceeding, the Joint Board declined to consider Advanced Telecommunications Incentives[72] in the context of this proceeding.[73] With respect to National Education Technology Funding Corporation,[74] the Joint Board noted that the Corporation provides additional opportunities for schools to increase the deployment of technology within their institutions.[75] The Joint Board stated that regardless of its support of the Corporation's mission, which includes the development of public-private ventures to accelerate the dissemination + Page 48 + of technology, it would not rely on that section to provide advanced services to schools within the context of the universal service rulemaking proceeding. Instead, it recommended that National Education Technology Funding Corporation be considered further after implementation of the universal service provisions.[76] Implementation The Joint Board recommended that the Commission adopt rules that will permit schools to begin using discounted services at the start of the 1997 - 1998 school year.[77] JOINT BOARD MEMBERS' COMMENTS ON THE RECOMMENDED DECISION: POINTS OF AGREEMENT/POINTS OF CONTENTION From the beginning, the diverse backgrounds of the Joint Board members presented the possibility of dissent on a number of issues. Only two members of the Joint Board, Florida State Commissioner Johnson and Washington State Commission Chair Nelson, indicated their full approval of the Recommended Decision. They submitted a joint statement saying that they "fully support the Recommended Decision of the Federal-State Joint Board on universal service," but added that continued oversight and periodic adjustment are necessary.[78] Internet Access The Joint Board members were in agreement on the issue of Internet access. Commenters opposing its inclusion based their claim on the fact that Internet access is an information service rather than a telecommunications service. They believe that since only telecommunications services are now available under universal service, only those services should be required under the new definition of universal service for schools. Internal Connections Unlike the recommendation on Internet access, in which there was no dissent among the Joint Board members, some minor dissent was found on the subject of internal connections. Additionally, although this issue was strongly opposed by many commenters, two of the eight members expressed "concerns" or "reservations" about possible economic, competitive, or legal problems associated with funding inside connections. One member wrote specifically in support of the decision. Presumably, the remaining members agreed with the decision as well. + Page 49 + FCC Commissioner Chong stated that she supported the significant discounts recommended by the Joint Board on telecommunications services and Internet access, but expressed reservations about the Joint Board's recommendation to fund internal connections. While she believes that funding such connections is a "worthy goal," she also believes that this portion of the program is not mandated by the Act and will increase consumers' bills. Her concern was that "we should be cautious about expanding the scope of the covered 'services' until we are sure we have met our mandatory statutory obligations for all groups designated in the Act and have sufficient funds to do so."[79] Additionally, South Dakota State Commissioner Schoenfelder also expressed concerns that providing inside connections is not "consistent with a strict reading of the Act under Advanced Services."[80] She stated that the Act only calls for supporting "services," not "plant and equipment."[81] FCC Commissioner Ness wrote a statement strongly supporting the inclusion of inside connections the Recommended Decision, saying, "I am delighted that the Joint Board has recommended that we address [disparities in access] through aggressive discounts that enable poorer schools and those in rural areas to obtain the services they need." She stated her belief that the Joint Board was "on firm legal and policy ground in recommending universal service support for internal connections, whether or not they are "telecommunications services." A contrary construction, which would permit support of wireless connections but not wired ones, would be completely at odds with the principle of competitive neutrality. Technology choices should be made by schools and libraries, not by regulators."[82] Use of Interstate and Intrastate Revenues The issue of using intrastate as well as the tradition interstate revenues as a funding base for universal service was also a point of contention with the Joint Board members. Four of the eight supported the recommendation to base contributions to support schools on both interstate and intrastate revenues, while two specifically opposed the recommendation. The opposing members' concerns were based on both competitive neutrality and legal concerns. Although Ness did not specifically state her support for assessing both interstate and intrastate revenues for support to schools, her statement concerning support for high-cost areas indicates that she also supports such an assessment in the case of schools: + Page 50 + "We have made good progress in addressing the challenge of high-cost areas, but much remains to be done. . . Regrettably, the Joint Board has failed to address the question whether the funding for federal programs for high-cost support. . . will be based on both the intrastate and interstate revenues of carriers that provide interstate telecommunications services, or only on their interstate revenues. . . In my view, the federal program must be based on both intra[state] and interstate revenues and provide the full measure of support needed to meet the benchmark."[83] Chong also supported the Joint Board's recommendation to base contributions to the universal service fund as it relates to schools on both interstate and intrastate telecommunications revenue. She stated that "if Congress had intended that the system be funded entirely by contributions based solely on interstate revenue of interstate carriers, I believe that it would have been more specific." Not only did she find that ß 254(f), State Authority, supports the inclusion of intrastate revenues, but that, in the future, "there will be a blurring of lines between interstate and intrastate revenues."[84] Johnson and Nelson concurred with the Recommended Decision to fund the school discount program through both interstate and intrastate revenues. They based their support on the premise that "the Congress and the Administration agreed that this is a social policy that is in the interest of the Nation, both economically and socially" and that "states have uniformly supported this broad social policy of providing access to technology for the benefit of residents and schoolchildren."[85] Schoenfelder and Missouri State Commissioner McClure dissented on this issue, citing three specific concerns. First, they believe that the FCC only has authority to base contributions on interstate telecommunications revenues - assessing intrastate telecommunications revenues is not within the FCC's jurisdiction. Second, they stated that Congress intended the 1996 Act to preserve state authority over universal service matters within the state and assessing intrastate funds at the federal level could have a negative impact on state universal service programs. Finally, they interpret the Act as allowing the FCC to assess contributions only from interstate telecommunications service providers. They believe that to recover intrastate revenues from these carriers is discriminatory because the same services are not assessed if they are provided by service provider providing intrastate services.[86] + Page 51 + Overall Size of Fund The overall size of the fund was also cited as an area of concern by two Joint Board members. Chong and Schoenfelder expressed concerns about the overall size of the universal service fund, citing the inclusion of subsidies for inside connections as a major factor in that concern. For example, Chong stated in her statement that the estimated $2.25 billion to assist schools "may be excessive and harmful to end users. . . By supporting services at this level, average rates for all consumers may increase and it may harm competition which is the principal objective of the law."[87] Conversely, Johnson and Nelson believed that the $2.25 billion funding cap imposed will be sufficient to minimize any harm to consumers.[88] ANALYSIS The points of dissent and concern expressed by the Joint Board members represent much of the overall dissent among the commenters, except on the issue of Internet access. However, the fact that the FCC, in its request for comments to the Recommended Decision, only requested input on how to identify high-cost areas and low-income schools indicates that the FCC has decided to accept the recommendations of the Joint Board on the other issues. Internet Access The Joint Board's reasoning for including Internet access is sound. Information services are specifically named in ß 254 and Congress expressed its support for including Internet access in its Joint Explanatory statement. Although including an information service under universal service is a new direction for the fund, it is in no way outside of the plain language of the law. However, the fact that non- telecommunications service providers will be allowed to collect out of the fund while not paying into it is a new feature of the fund and may be contested. The recommendation is certainly not popular with the majority of industry members. Inside Connections Inside connections are not mentioned in ß 254 of the Act and the argument used to support their inclusion in the fund is more tenuous than that used to justify the inclusion of Internet access. At first glance, it does not appear that inside wire can legally be covered. However, the fact that wireless inside connections will be eligible for + Page 52 + support introduces a new argument in support of providing discounts on inside connections. The Joint Board makes a strong point on this issue. Again, telecommunications service providers will counter that those installing inside wire - a nonregulated service - should not receive compensation out of a fund that they do not pay into. The Joint Board, however, seems to have made clear its opinion that whether an entity pays into the fund or not, it will be eligible to collect out of it. Overall Size of the Fund Concerns about designating too many and too broad a variety of services as part of universal service for schools leads into the concern that the fund itself will become too large to maintain public support. Commenters arguing that only basic service should be provided based their assertions in part on the idea that the universal service fund is part of a public trust that must have public support. If the fund were to grow too large, and customers began to believe they were paying too much for services, they would revolt against the entire idea of the fund. The Joint Board, again, has made its beliefs clear on this matter. By setting what it believes to be a reasonable a cap on the fund, the Joint Board believes it has minimized such a possibility. Use of Interstate and Intrastate Revenues The decision to assess intrastate as well as interstate revenues from interstate telecommunications service providers is the most complex of the issues related to schools that was addressed by the Joint Board. Unfortunately, commenters provided very little input to this issue and the Joint Board did not write on it extensively in its recommendation. The most important comments on this issue were written by the members in their press statements that accompanied the release of the Recommended Decision. A number of valid arguments can be made for either including or excluding intrastate revenues. The majority of members within the Joint Board argued to include those revenues. In addition to the reasons stated by the Joint Board itself, another reason for including interstate revenues is because, at least in the opinion of one well- known telecommunications policy expert, Eli Noam of Columbia University: "The traditional notion of jurisdictional separation was based on a linear, spatial concept of networks. Networks were configured to + Page 53 + minimize transmission distance. But as transmission costs decline, telecommunications becomes distance-insensitive, and definitions of interstate, intrastate and national services become increasingly irrelevant."[89] If, as Noam says, differentiating between interstate and intrastate revenues will become more difficult in the future, it certainly makes sense to assess both types of revenues. Additionally, assessing both interstate and intrastate revenues will increase the base from which universal service will be funded. Arguments against assessing intrastate revenues are also compelling, however. One concern of industry as well as state commenters was that "including state revenues would adversely affect state support programs by assessing contributions on intrastate revenues twice, once for federal support and once for state support."[90] Additionally, since the costs of such an assessment would most likely be passed onto consumers, it would be anticompetitive to require one provider of a service to contribute while exempting another because of its status as an interstate provider. This decision could drive up prices for those companies required to contribute on their intrastate revenues and give intrastate-only companies a price advantage. To balance the decision, those carriers required to contribute to the fund based on their interstate and intrastate revenues should perhaps be exempted from paying at the state level based on their intrastate revenues. CONCLUSION The Joint Board's recommendations, especially the inclusion of the controversial Internet access and inside connection services, indicate that it is very sympathetic to the needs of schools. Commenters representing schools and the public interest sector are generally pleased with the recommendations. Although many in industry will no doubt voice their displeasure with these recommendations in its comments on the Recommended Decision, the provision will most likely be adopted "as is" by the FCC. The future of the decision to assess intrastate revenues from interstate telecommunications providers is less certain, although the support of this provision by Commissioner Chong, generally known for a more pro- business stance than the other commissioners, may indicate that industry will have to either live with it or challenge it in court. Discussions with telecommunications policy experts indicate that no challenge will occur on this issue, although such a challenge would not come as a complete surprise. + Page 54 + The Joint Board's recommendations are a liberal yet accurate interpretation of the Act. If implemented properly, the recommendations are sure to increase the level of Internet access and use in the classroom. And, that, after all, was part of the legislative intent of ß 254 of the Act. FOOTNOTES [1] 1996 Act, Pub. L. No. 104-104, 110 Stat. 56. The 1996 Act amends the Communications Act of 1934, 47 U.S.C. ßß 151 et. seq. All citations to the 1996 Act will be to the relevant sections of the United States Code unless otherwise noted. The 1996 Act is available online at ; the 1934 Act as amended by the 1996 Act is available online at . [2] 47 U.S.C. ß 254. [3] A high-cost area is one in which the cost of providing service is at least 115% of the national average. 47 C.F.R. ß 36. See also Amendment of Part 69 of the Commission's Rules Relating to the Assessment of Charges for the Universal Service Fund and Lifeline Assistance, Memorandum Opinion and Order, 4 FCC Rcd 6134 (1989). [4] 47 C.F.R. ßß 36.701-36.741, 69.104(j)-(l), 69.116, 69.117, 69.203(f)-(g). See also Amendment of Part 69 of the Commission's Rules Relating to the Assessment of Charges for the Universal Service Fund and Lifeline Assistance, Memorandum Opinion and Order, 4 FCC Rcd 6134 (1989). [5] Federal Communications Commission, Notice of Proposed Rulemaking and Order Establishing Joint Board, 96-93, CC Docket No. 96-45, released March 8, 1996, . [6] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, 96-93, CC Docket No. 96- 45, adopted November 7, 1996, released November 8, 1996, . [7] Federal Communications Commission, Common Carrier Bureau Seeks Comment On Universal Service Recommended Decision, 96-93, CC Docket No. 96-45, released November 18, 1996, + Page 55 + [8] 47 U.S.C. ß 254(c)(1)(A)-(D). [9] 47 U.S.C. ß 254(h)(5)(C). [10] 47 U.S.C. ß 254(h). The portions of the 1996 Act, Notice of Proposed Rulemaking, and Recommended Decision that apply to schools also apply to libraries; however, only schools are addressed in this paper. Health care providers are examined separately in the 1996 Act, Notice of Proposed Rulemaking, and Recommended Decision, and are also not addressed in this paper. [11] 47 U.S.C. ß 254(c)(3). [12] 47 U.S.C. ß 254. [13] " . . .schools and classrooms, health care providers, and libraries should have access to advanced telecommunications services as described in subsection (h)[(1)(B)]." 47 U.S.C. ß 254(b)(6). [14] "In addition to the services included in the definition of universal service. . . the Commission may designate additional services for such support mechanisms for schools, libraries, and health care providers for the purposes of [ß254(h)(1)(B)]." 47 U.S.C. ß 254(h)(1)(B). [15] "All telecommunications carriers serving a geographic area shall. . . provide. . . services to [schools] at [discounted] rates. The discount shall be an amount that. . . is appropriate and necessary to ensure affordable access to and use of such services by [schools]." 47 U.S.C. ß 254(h)(1)(B). [16] "The 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. . ." 47 U.S.C. ß 254(h)(2)(A). [17] 1996 Act, ß 706. [18] 1996 Act, ß 708. [19] Neither ß 706 nor 708 amended the Communications Act of 1934; each stands alone and initiates a new program. A third section of the 1996 Act, ß 707 (47 U.S.C. ß 714), establishes the Telecommunications Development Fund. It is not addressed in the Notice of Proposed Rulemaking on Universal Service and is therefore not described in + Page 56 + greater detail here. See Federal Communications Commission, Telecommunications Development Fund Fact Sheet, for additional information, . [20] 1996 Act, ß 706. [21] 1996 Act, ß 706(b). According to the information on the FCC's education-related web page, LearnNet, "the FCC is in the process if deciding how best to implement Section 706." See Federal Communications Commission, LearnNet, . [22] 1996 Act, ß 708. At this time, no action has been taken to establish or administer the Corporation; however, it is mentioned in the FCC's Request for Further Comment in its universal service proceeding, discussed below. [23] Federal Communications Commission, Notice of Proposed Rulemaking and Order Establishing Joint Board, CC Docket No. 96-45, March 8, 1996. [24] Implicit subsidies are pricing practices that appear to create subsidies due to mismatched between costs and cost recovery. Explicit subsidies are targeted to specific groups of subscribers or types of local exchange carriers. There are currently six such mechanisms that promote nationwide universal service. Two provide assistance directly to the subscriber; four provide assistance to the local exchange carrier. For an excellent description and discussion of these mechanisms, see Federal Communications Commission, Common Carrier Bureau, Preparation for Addressing Universal Service Issues: A Review of Current Interstate Support Mechanisms, February 1996, . [25] Federal Communications Commission, Notice Requesting Further Comment, 96-93, CC Docket No. 96-45, July 3, 1996, , question 9. [26] Ibid., question 6. [27] Ibid., question 7. [28] The Recommended decision addresses eleven issues: (1) universal service principles; (2) the definition of universal service (which core services to support); (3) affordability of services; (4) carriers eligible for universal service support; (5) high-cost support; (6) + Page 57 + support for low-income consumers; (7) issues unique to insular areas; (8) support for schools and libraries; (9) support for healthcare providers; (10) Subscriber Line Charge (SLC) and Carrier Common Line Charge (CCLC); and (11) universal service fund administration. Federal Communications Commission, Recommended Decision of the Federal-State Joint Board on Universal Service, par. 4. [29] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 4. [30] 47 U.S.C. ß 254(h)(1)(B). [31] 47 U.S.C. ß 254(h)(2)(A). [32] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 460. [33] Ibid., par. 458 [34] Ibid., par. 459. [35] 47 U.S.C. ß 254(c)(1). [36] 47 U.S.C. ß 254(c)(3). [37] Ibid. [38] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 459, citing Joint Explanatory Statement, S. Conf. Rep. No. 104-230, 104th Cong., 2d Sess., 1996, 132-33. [39] Ibid., par. 461. [40] 47 U.S.C. ß 254(h)(2)(A). [41] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 462 [42] Ibid., par. 463 [43] Inside connections are that portion of the total telecommunications connection that exists between the schoolhouse door and the customer's equipment, such as a telephone or a computer. It may consist of a wire or wireless connection as defined by the Joint Board. + Page 58 + [44] 47 U.S.C. ß 254(h). [45] 47 U.S.C. ß 254. [46] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 473. [47] Ibid., par. 474. [48] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 474, citing Union City Board of Education further comments, 6. [49] The FCC has proposed making available 350 megahertz of spectrum at 5.15 - 5.35 GHz and 5.725 - 5.875 GHz for use by a new category of unlicensed equipment called NII/SUPERNet devices. NII/SUPERNet devices would provide short-range, high-speed wireless digital information transfer and could support the creation of new wireless local area networks (LANs) as well as facilitate access to the National Information Infrastructure without the expense of wiring. These devices may further the universal service goals of the Telecommunications Act by offering schools, libraries, health care providers, and other users inexpensive networking alternatives which may access advanced telecommunications services. To further promote technical and operational flexibility, the Commission has proposed to regulate NII/SUPERNet devices under Part 15 of the FCC rules. Unlicensed Part 15 status would facilitate spectrum reuse and provide protection to incumbent and proposed primary operations. Federal Communications Commission, Office of Engineering and Technology, Unlicensed NII/SUPERNet Operations in the 5GHz Frequency Range, . [50] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 482. [51] Ibid., par. 476. [52] Ibid. [53] 47 U.S.C. ß 254(h). [54] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 486, citing Letter from 26 Senators to Members of the Joint Board, Sept. 26, 1996, 1. [55] Ibid., par. 535. + Page 59 + [56] Ibid., par. 561. [57] Ibid., par. 562, citing Public Advocates comments, 18-19; American Federation of Teachers, further comments, 3-4; and National Coalition for the Homeless, further comments, 8. [58] Ibid., pars. 564 - 570. [59] Ibid., pars. 557 - 560. [60] Ibid., par. 551. [61] Ibid., par. 549. [62] These three companies control approximately 90 percent of the long distance telephone market. Catherine Arnst, "The Giants Aren't Sleeping," Business Week, April 8, 1996, 70. [63] Ibid. [64] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, pars. 552 - 556. [65] Ibid., par. 817. The Joint Board recommended that an "interstate telecommunications" should be defined to include the interstate portion of the following: cellular telephone and paging, mobile radio, operator services, personal communications services, access (including subscriber line charges), alternative access and special access, packet switched, WATS [Wide Area Telephone Service], toll-free, 900, MTS [Foreign Message Toll Telephone Service], private line, telex, telegraph, video, satellite, international/foreign, intraLATA [local access transport area], and resale services. See par. 785. [66] Ibid., par. 816. [67] Ibid., par. 815. [68] The Commission's rules define "enhanced services" as "services offered over common carrier transmission facilities used in interstate communications which employ computer processing applications that act on the format, content, code, protocol or similar aspects of the subscriber's transmitted information; provide the subscriber additional, different, or restructured information; or involve subscriber interaction with stored information." See 47 C.F.R. ß 64.702. The definition of enhanced services is substantially similar to the definition of information services, and information services are not + Page 60 + "telecommunications services." Federal Communications Commission, Recommended Decision of the Federal-State Joint Board on Universal Service, par. 790. [69] Offset decreases the amount to be paid into the fund by a service provider by the amount equal to what it would be eligible to collect out the fund. Offset is only applicable to providers who would be required to (1) pay into the fund and (2) pay more in than they would collect. Reimbursement would be available to any service provider regardless of the amount paid into the fund. [70] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 613. [71] 1996 Act, ß 706. [72] Ibid. [73] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, pars. 618 - 619. [74] 1996 Act, ß 708. [75] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, pars. 618, 620. [76] Ibid., pars. 618 - 619. [77] Ibid., par. 630. [78] Federal Communications Commission, Separate Statement of Commissioner Julia Johnson and Chairman Sharon Nelson, 96-93, CC Docket No. 96-45, November 7, 1996, [79] Federal Communications Commission, Separate Statement of FCC Commissioner Rachelle Chong, Concurring in Part, Dissenting in Part, 96- 93, CC Docket No. 96-45, November 7, 1996, + Page 61 + [81] Federal Communications Commission, Separate Statement of Commissioner Laska Schoenfelder, Dissenting in Part, 96-93, CC Docket No. 96-45, November 7, 1996, [82] Federal Communications Commission, Separate Statement of Commissioner Susan Ness, 96-93, CC Docket No. 96-45, November 7, 1996, [83] Federal Communications Commission, Separate Statement of Commissioner Susan Ness. [84] Federal Communications Commission, Separate Statement of FCC Commissioner Rachelle Chong, Concurring in Part, Dissenting in Part. [85] Federal Communications Commission, Separate Statement of Commissioner Julia Johnson and Chairman Sharon Nelson. [86] Federal Communications Commission, Separate Statement of Commissioner Laska Schoenfelder, Dissenting in Part and Separate Statement of Commissioner Kenneth McClure, Concurring in Part and Dissenting in Part, 96-93, CC Docket No. 96-45, November 7, 1996, . [87] Federal Communications Commission, Separate Statement of FCC Commissioner Rachelle Chong, Concurring in Part, Dissenting in Part. [88] Federal Communications Commission, Separate Statement of Commissioner Julia Johnson and Chairman Sharon Nelson. [89] Eli Noam, "Principles For The Communications Act Of 2034: The Superstructure of Infrastructure," n.d., . Emphasis added. [90] Federal Communications Commission, Recommended Decision of the Federal State Joint Board on Universal Service, par. 815. ----------------------------------------------------------------------------- + Page 62 + BIOGRAPHICAL NOTES: Patricia Figliola Lewis University of Florida PhD Student, Telecom Policy & Law http://grove.ufl.edu:80/~pflewis/ pflewis@nersp.nerdc.ufl.edu Patricia Figliola Lewis is a second-year doctoral student in media law and policy at the University of Florida's College of Journalism and Communications. Previously, Ms. Lewis was employed by Booz-Allen & Hamilton in McLean, VA, where she managed contract support to a Presidential advisory committee on national security and emergency preparedness telecommunications policy issues. Ms. Lewis earned her B.S. in computer science from Villanova University and her M.S. in telecommunications management from the University of Maryland. Her research interests include universal service, K-12 technology and media education, and telecommuting. ----------------------------------------------------------------------------- Copyright Statement Interpersonal Computing and Technology: An Electronic Journal for the 21st Century Copyright 1997 University of Maryland Baltimore County and the Association for Educational Communications and Technology. Copyright of individual articles in this publication is retained by the individual authors. Copyright of the compilation as a whole is held by the UMBC and AECT. It is asked that any republication of this article state that the article was first published in IPCT-J. Contributions to IPCT-J can be submitted by electronic mail in APA style to: Susan Barnes, Editor IPCT-J SBBARNES@PIPLELINE.COM or BARNES@MURRAY.FORDHAM.EDU