Changes to the Board of Directors of the National Exchange Carrier Association, Inc., Federal-State Joint Board on Universal Service

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 54 and 69

[CC Docket Nos. 97-21 and 96-45; FCC 98-306]

Changes to the Board of Directors of the National Exchange

Carrier Association, Inc., Federal-State Joint Board on Universal

Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, we reconsider the current organizational

structure for administering the universal service support mechanisms

and adopt a plan for merging the Schools and Libraries Corporation

(SLC) and the Rural Health Care Corporation (RHCC) into the Universal

Service Administrative Company (USAC) by January 1, 1999. We

substantially adopt the Report and Proposed Plan of Reorganization (the

Plan) filed with the Commission by USAC, SLC, and RHCC on July 1, 1998,

with certain modifications. We also adopt specific procedures under

which administrative decisions made by USAC will be reviewable by the

Commission.

DATES: These rules are effective January 1, 1999, except for

Sec. 54.701, which is effective December 1, 1998; and Secs. 54.703(c)

and 54.721, which contain modified information collection requirements

and will not become effective until approved by the Office of

Management and Budget. The FCC will publish a document in the Federal

Register announcing the effective date for Secs. 54.703(c) and 54.721.

FOR FURTHER INFORMATION CONTACT: Sharon Webber, Attorney, Common

Carrier Bureau, Accounting Policy Division, (202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's

document released on November 20, 1998. The full text of this document

is available for public inspection during regular business hours in the

FCC Reference Center, Room 239, 1919 M Street, N.W., Washington, D.C.,

20554.

Summary of Third Report and Order in CC Docket No. 97-21, Fourth

Order on Reconsideration in CC Docket No. 97-21 and Eighth Order on

Reconsideration in CC Docket No. 96-45

I. Introduction

1. In this Order, we reconsider the current organizational

structure for administering the universal service support mechanisms

and adopt a plan for merging the Schools and Libraries Corporation

(SLC) and the Rural Health Care Corporation (RHCC) into the Universal

Service Administrative Company (USAC) by January 1, 1999. We

substantially adopt the Report and Proposed Plan of Reorganization (the

Plan ) filed with the Commission by USAC, SLC, and RHCC on July 1,

1998, with certain modifications. We also adopt specific procedures

under which administrative decisions made by USAC will be reviewable by

the Commission.

II. Revised Corporate Structure

A. Consolidation of Administrative Responsibilities

2. Commenters generally support vesting in USAC the responsibility

for administering all of the universal service support mechanisms,

including the creation of three divisions--the Schools and Libraries

Division, the Rural Health Care Division and the High Cost and Low

Income Division--to oversee each of the support mechanisms.

3. We find that consolidating all of the administrative

responsibilities into USAC is consistent with Congress's directive to

establish a single entity to administer the universal service support

mechanisms for schools, libraries, and rural health care providers, and

will minimize disruption and take advantage of USAC's experience in

administering the universal service support mechanisms. We conclude

that USAC is uniquely qualified to assume responsibility for the

administration of all of the support mechanisms in light of its current

responsibility for administering the high cost and low income

mechanisms and for collecting and disbursing funds for the schools and

libraries and rural health care support mechanisms. We find that the

appointment of USAC minimizes the potential disruption of the ongoing

administration of the universal service support mechanisms that could

occur were we to appoint an entity that has not previously been

involved in the administration of universal service. In addition,

establishing USAC as the single administrator establishes clear lines

of accountability. We further believe, that the consolidation will

result in administrative efficiencies. The distinct mission of each

support mechanism will be preserved by establishing divisions within

USAC. The divisions will perform the duties and functions currently

performed by SLC, RHCC and the High Cost and Low Income Committee, as

directed by the committees of the USAC Board.

4. We disagree with SBC's assertions that the revised

administrative structure is flawed in light of its ``erroneous''

reliance on the lawfulness of USAC. SBC contends that the GAO's finding

that the Commission's creation of SLC and RHCC violated the Government

Corporation Control Act (GCCA) similarly applies to the Commission's

creation of USAC.

5. The Commission has stated that it reasonably relied upon the

authority of sections 254 and 4(i) of the Communications Act (Act) when

it conditioned the approval of NECA as the temporary Administrator of

the support mechanisms on NECA's formation of SLC, RHCC, and USAC.

Indeed, in enacting section 254, Congress specifically contemplated

that the Commission would create federal universal service support

mechanisms. NECA, an independent, non-profit organization, had been

administering the high cost support mechanism for more than a decade

when Congress passed the Telecommunications Act of 1996. Thus, Congress

was aware of NECA's role when it adopted section 254, which affirmed

and expanded the Commission's authority to direct the administration of

universal service and therefore, implicitly affirmed the Commission's

authority to employ an independent entity to administer universal

service. We find no indication that Congress sought to dismantle the

existing administrative system, or to prohibit the Commission from

using NECA, or another independent entity to administer universal

service. USAC was created as a subsidiary of NECA. Inasmuch as USAC is

a subsidiary of NECA, which was lawfully created and has the authority

to administer the universal service support mechanisms, we see no

statutory impediment to USAC. Moreover, we find it significant that the

GAO made findings only with respect to the creation of SLC and RHCC;

GAO did not make any findings concerning the establishment of USAC. We

thus find that consolidating the administration of universal service

into USAC is ``pursuant to the findings of the General Accounting

Office.''

B. Limitations on USAC's Authority

6. Several commenters recommend that USAC's functions be confined

strictly to applying the Commission's rules and that it be prohibited

from engaging in policy making. Consistent with Congress's directive

that the combined entity shall not interpret rules or statute, we

emphasize that USAC's function under the revised structure will be

exclusively administrative. USAC may not make policy, interpret

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unclear provisions of the statute or rules, or interpret the intent of

Congress. Where the Act or the Commission's rules are unclear, or do

not address a particular situation, USAC must seek guidance from the

Commission on how to proceed. Furthermore, USAC may advocate positions

before the Commission and Commission staff only on administrative

matters relating to the universal service support mechanisms.

7. Commenters also urge the Commission to ensure USAC's

accountability to the Commission. The Commission retains ultimate

control over the operation of the federal universal service support

mechanisms through its authority to establish the rules governing the

support mechanisms and through its review of administrative decisions

that are appealed to the Commission. The consolidated USAC will

continue to be accountable to the Commission through the procedures

that currently apply to USAC, SLC, and RHCC. In fact, USAC's

appointment as permanent Administrator and the expansion of its

responsibilities are conditioned on its compliance with Commission

rules and orders. Existing procedures to ensure accountability include

the Commission's universal service rules, which provide detailed

guidance on administration of the universal service support mechanisms,

annual audit requirements, regular coordination with Commission staff,

and quarterly filing of projected administrative expenses and estimates

of support mechanism demand. In addition, the Commission will continue

to oversee the structure and content of the annual independent audit

that USAC is required to undertake.

8. To foster greater accountability, we direct USAC to prepare and

submit to the Commission and Congress an annual report by March 31 of

each year. The Commission proposed such a report in the Report to

Congress and several commenters supported this proposal. The annual

report should detail USAC's operations, activities, and accomplishments

for the prior calendar year. In addition, the annual report should

provide an assessment of contractor performance. Consistent with the

comments of the American Library Association (ALA) and Intermedia, we

direct USAC to include in its annual report information about

beneficiary and Service Provider participation in each of the universal

service support mechanisms and administrative actions intended to

prevent waste, fraud, and abuse by beneficiaries and service providers.

USAC shall consult with Commission staff to define the scope and

content of the annual report. This report will serve as the basis for

an annual review by the Commission of the universal service support

mechanisms. Because the annual report will detail contractor

operations, it also will enhance the Commission's oversight of

contractor performance.

C. USAC Permanence and Divestiture

9. We conclude that USAC should be made the permanent Administrator

and hereby dispense with the requirement that the permanent

Administrator be chosen by a federal advisory committee. Many

commenters support the Plan's recommendation that the Commission

designate USAC as the permanent Administrator. The primary reason that

USAC initially was designated as temporary rather than permanent

Administrator was because the Joint Board had concerns that NECA and

USAC, as a subsidiary of NECA, might be biased in favor of local

exchange carriers and might not fully represent all interested parties.

We conclude that, subject to the modifications set forth in this Order,

USAC fairly represents all interested parties, including a broad range

of industry, consumer, and beneficiary groups. Therefore, we conclude

that USAC should be the permanent Administrator. We also adopt the

proposal set forth in the Commission's Report to Congress to review

USAC's performance after one year to ensure that it is administering

universal service in an efficient, effective, and competitively neutral

manner. Providing permanence to the revised structure will ensure

USAC's ability to continue to attract and maintain qualified personnel

and to prevent unnecessary disruption to contributors and

beneficiaries.

10. We decline to adopt the Plan's proposal to divest USAC from

NECA at this time. Rather, consistent with the Commission's proposal in

the Report to Congress to divest USAC from NECA pending Commission

review of USAC's performance after one year, we will review in one year

whether USAC should remain affiliated with NECA. Retaining USAC as a

subsidiary of NECA is most responsive to Congress's directive that the

revised administrative structure be consistent with the GAO letter.

Since NECA was established in 1983, neither GAO nor any other party has

alleged that the creation of NECA was unlawful or that it violated the

GCCA. Therefore, we find that retaining USAC's affiliation with NECA is

responsive to concerns raised by the GAO. Moreover, maintaining USAC as

a subsidiary of NECA should minimize disruption to the support

mechanisms due to legal challenges. Finally, to eliminate any further

question concerning the Commission's authority to appoint USAC as the

permanent Administrator, we renew our request for specific statutory

authorization.

D. Changes to the USAC Board

11. We adopt the Plan's proposals to retain the current seventeen

Board member positions, based on our belief that the current Board has

achieved an appropriate balance of broad industry, beneficiary, and

consumer representation. In addition, we are persuaded that we should

add one additional rural health care provider to the Board. We also

adopt the Plan's proposal to create a permanent position on the USAC

Board for the USAC CEO, for a total of 19 members. Because the USAC CEO

will have overall management responsibility for all of the support

mechanisms, we conclude that the creation of a voting position on the

Board for the USAC CEO will offer continuity and consistency to USAC's

administration, and will create clear lines of accountability. We

direct that USAC's by-laws be amended to reflect the addition of the

USAC CEO, as well as an additional rural health care position.

12. We modify the Plan to add a second rural health care

representative to the USAC Board. We agree with RHCC and numerous

commenters that additional rural health care representation will assist

the Board's ability to address technical issues that are unique to the

rural health care community and that may fall outside of the general

competence and expertise of the USAC Board as a whole. We believe that

adding a second rural health care representative will help ensure that

the administrative structure ``take[s] into account the distinct

mission of providing universal service to rural health care

providers,'' in accordance with Congress's direction. Rather than

changing the Board's composition by replacing schools and libraries

representatives with rural health care provider representatives, as GTE

suggests, we have determined to add a second rural health care provider

representative to the Board. We find that this best ensures adequate

representation of all interested groups, without disrupting the

existing representation of schools and libraries, which was decided

based on input from all interested parties. Accordingly, the additional

rural health care representative on the Rural Health Care Board shall

serve on the USAC Board.

13. We are not convinced by Intermedia's suggestion that subject

matter expertise is necessary only at the

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division level, and would not be helpful on the Board as well. We also

decline to allocate a total of three positions on the USAC Board for

rural health care interests, as requested by RHCC. Given the relatively

smaller size of the rural health care mechanism compared to the schools

and libraries support mechanism, we find that including two rural

health care representatives ensures adequate and proportionate

representation of health care interests.

14. The American Psychological Association recommends that we

allocate one rural heath care position specifically to a representative

of rural behavioral health care providers. The Secretary of Health and

Human Services recommends that we add a representative with experience

in the use of telemedicine in the delivery of rural health care and

another one with experience in rural public health. We are reluctant to

substitute our judgment for that of the rural health care community

concerning the particular categories of rural health care providers

that should serve on the USAC Board. Accordingly, we will permit the

rural health care community to nominate, through the consensus

nomination process, the particular rural health care provider

representatives who should serve on the USAC Board. This approach is

consistent with the Commission's decision not to specify the particular

categories of educational institutions (e.g., public versus private

institutions) that are represented on the USAC Board. Rather, the

Commission has permitted the education community to select, through the

nomination process, the particular schools representatives who serve on

the USAC Board.

15. We decline to adopt the American Library Association's

recommendation that we increase library representation on the Board

commensurate with any increase in rural health care representation on

the Board. Although the American Library Association identifies certain

universal service implementation issues that are unique to libraries,

we find that, for the most part, schools and libraries face similar

issues as beneficiaries of the same universal service support

mechanism. As a result, in determining whether libraries are adequately

represented, we find that it is appropriate to consider whether schools

and libraries, as a whole, have adequate representation on the Board.

We believe this is consistent with Congress's establishment of a single

support mechanism for schools and libraries. Accordingly, we conclude

that a total of four positions on the USAC Board adequately represents

these beneficiary interests. Furthermore, in light of the relative

number of potential school and library participants, we find that it is

appropriate to allocate three representatives to schools and one

representative to libraries.

16. We decline to adopt one commenter's suggestion that we

fundamentally alter the composition of the Board by adding a variety of

industry representatives. We find that the USAC Board, as currently

configured, generally has afforded fair representation of the diverse

participants in, and competitively neutral administration of, the

universal service support mechanisms. We are reluctant to increase

further the size of the Board, absent a demonstrated need, because we

are concerned that to do so might make the decision-making process more

difficult.

E. USAC Committees

17. We generally find that the composition of the Committees of the

Board proposed by the Plan adequately represents the variety of

beneficiaries' interests and therefore we adopt, subject to the

modifications, the Plan's recommendation to retain the existing High

Cost and Low Income Committee and to establish two new committees of

the Board: the Schools and Libraries Committee and the Rural Health

Care Committee. Specifically, we adopt the Plan's proposal with respect

to the make-up of the Schools and Libraries Committee. We also adopt

the Plan's proposal regarding the Rural Health Care Committee, except

that we add one rural health care provider to the Committee. We adopt

the Plan's proposal with respect to the High Cost and Low Income

Committee, except that we add one incumbent LEC to that Committee.

Finally, to enhance Commission oversight of the revised administrative

structure, we adopt the Plan's proposal that the USAC Board may not

modify substantially the power or authority of the Committees of the

Board without Commission approval.

18. We disagree with Intermedia's claims that committees are

unnecessary in light of the statutory provision that limits USAC to the

performance of purely administrative functions. According to

Intermedia, staff in each of the divisions could provide the necessary

expertise and interface with particular communities as needed. We are

persuaded by the Plan, however, that the proposed committees are

uniquely able to provide expertise necessary to administer the support

mechanisms most effectively. For example, the Plan notes that the

committee structure will enable USAC to target communications to the

particular beneficiary or service provider group impacted by a support

mechanism. We conclude that the creation of specialized committees will

help preserve the distinct mission of each of the support mechanisms

and, in particular, is consistent with Congress's directive to ``take

into account the distinct mission of providing universal service to

rural health care providers.''

19. Numerous commenters from the rural health care community oppose

the Plan's proposed composition of the Rural Health Care Committee,

which consists of one rural health care representative on a seven-

member committee. The majority of these commenters recommends that

most, if not all, of the members of the Rural Health Care Committee

should represent rural health care interests. Some commenters request

that USAC establish an advisory committee that would provide guidance

to USAC on rural health care issues. We share commenters' concerns with

respect to rural health care representation on the Rural Health Care

Committee as proposed by the Plan. Accordingly, we conclude that the

Committee should include the additional rural health care

representative that we allocate to the USAC Board in this Order. We

find that adding a second rural health care provider will enable the

committee to represent more fully the variety of beneficiaries'

interests. We also find that adding an additional representative to the

committee will not disturb the balance created by the Plan, which

recommended three committees of approximately the same size.

20. We are not persuaded, however, that rural health care providers

should comprise most or all of the committee positions, and in fact,

RHCC's Separate Statement would not have resulted in a majority of

rural health care providers serving on the Rural Health Care Committee.

There are many different groups affected by the rural health care

support mechanism, including service providers and ratepayers. We find

that each interest group should have some representation on the

committee. We note that the other two committees will have a broad

range of interests represented, and will not be comprised solely of

beneficiaries. We also reject suggestions that the Commission establish

a separate advisory committee on rural health care matters. To the

extent that subject matter expertise is needed, however, USAC is free

to seek input from various industry and non-industry groups on

particular rural health care matters.

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21. The National Telephone Cooperative Association (NTCA) contends

that the Plan's proposal for restructuring the High Cost and Low Income

Committee would result in a committee that is not sufficiently

representative of the beneficiaries of the high cost and low income

mechanisms. We agree with NTCA that the ``interests and perspectives of

a rural carrier will vary significantly from those of a urban

carrier.'' The Plan proposes only one incumbent LEC member of the High

Cost and Low Income Committee. We find that one incumbent LEC

representative may find it difficult to represent fairly the interests

of both small and large carriers. To ensure that both rural and non-

rural telephone companies receive adequate representation, we add one

more incumbent LEC to the High Cost and Low Income Committee than

proposed by the Plan. One incumbent LEC on the Board shall represent

rural telephone companies, as that term is defined in section 3(37) of

the Act, and one incumbent LEC shall represent non-rural telephone

companies. We do not adopt NTCA's suggestion that we retain all the

members of the current High Cost and Low Income Committee. We find that

retaining the existing ten (10) committee members is unnecessary to

represent contributors and beneficiaries of the high cost and low

income support mechanisms. We also are concerned that an 11 member

committee, comprised of the existing ten (10) members plus the USAC

CEO, would disturb the balance achieved by the Plan in proposing three

committees of approximately the same size.

F. Binding Authority of the Committees

22. We find that, by vesting in the committees the power and

authority to bind the USAC Board on matters relating to the daily

administration of the support mechanisms, the Plan gives the committees

the autonomy and flexibility needed to administer efficiently and

effectively each of the support mechanisms. We also conclude that the

power vested in the USAC Board to disapprove the decision of a

committee under the Board Disapproval procedure ensures that USAC is

accountable for all administrative decisions. Thus, we do not believe,

as some commenters suggest, that the committees' ability to bind the

Board would somehow diminish the Commission's ultimate responsibility

for administration of the universal service support mechanisms.

Similarly, because the Board and its committees are subject to

Commission rules and oversight, we do not believe, as Intermedia

suggests, that the Board Disapproval process permits the Board, through

its committees, to make decisions outside the scope of its authority.

We also find that subjecting committee budgets to the Board Disapproval

procedure facilitates oversight of committee administrative costs. RHCC

requests that the Commission grant the Rural Health Care Committee the

authority to bind the full USAC Board on all ``programmatic aspects.''

We find that such an approach would be at odds with Congress's

directive to establish a single Administrator that is accountable for

all decisions regarding the schools and libraries and rural health care

support mechanisms.

G. The USAC CEO

23. We adopt the Plan's proposal that the USAC CEO will have

ultimate authority over all personnel matters, but may delegate to

division heads the authority to hire and fire division staff. We find

that vesting the hiring and firing authority with the USAC CEO is

necessary to ensure accountability and effective administration of

USAC. Although we disagree with RHCC, GTE, and US WEST that the

division heads rather than the USAC CEO should have authority to hire

and fire division staff, we find that permitting the USAC CEO to

delegate some hiring and firing decisions to division chiefs provides

reasonable flexibility and may be the most efficient course of action

in some instances.

H. Selection Process for USAC Board and Chief Executive Officer

24. We adopt the Plan's recommendation that the consolidated USAC

Board be selected under the procedures set forth in 47 CFR 69.614 of

the Commission's rules. We do not agree with the view expressed by GTE

that procedures set forth in 47 CFR 69.614 allow Board appointments to

be ``influenced by the Commission's individual preferences.''

Candidates are nominated through a consensus process of particular

interest groups and therefore, it is the preference of a particular

industry or non-industry group represented on the Board that is

reflected through this process, not the Commission's individual

preferences. Moreover, our rules provide that Board members will be

nominated by the Commission Chairman only if an industry or non-

industry group is unable to reach a consensus or fails to submit a

nomination. The process we adopt will encourage groups to nominate the

most experienced and knowledgeable individuals who can most effectively

represent the interests of that constituency, while also ensuring that

the Commission retains a mechanism for appointing Board members when

industry or non-industry groups fail to achieve consensus.

25. With regard to Board member terms, section 69.614(e) of the

Commission's rules provides that USAC Board members shall serve two-

year terms and may be reappointed for subsequent terms pursuant to the

nomination and selection process. The Plan, however, proposes that

Board members serve staggered three-year terms. We adopt the Plan's

proposal and amend our rules accordingly. These measures help ensure

continuity on the Board and continuity in the administration of the

support mechanisms. Because the merger is scheduled to take place by

January 1, 1999, we conclude that Board member terms should commence on

January 1 and conclude on December 31, three years after appointment.

Consistent with the January 1, 1999 merger date, and to ensure

continuity during the initial implementation of the revised

administrative structure, we conclude that the terms of six Board

members should expire on December 31, 2000, another six on December 31,

2001, and the remaining six on December 31, 2002. Insofar as Board

member terms will not begin to expire until December 31, 2000, we

believe this responds to the American Library Association's request

that we retain the current library representative during the initial

phases of reorganization. USAC shall determine when particular Board

member terms shall expire. In making this determination, USAC should

attempt to maintain continuity on the Board by providing that the first

set of Board members whose terms will expire will be representatives of

industry and non-industry groups with multiple representatives on the

Board.

26. The Plan is silent with regard to the selection process for the

USAC CEO. The July 15 Public Notice, 63 FR 39549 (July 23, 1998),

proposed adopting the procedure that currently applies to the selection

of a CEO for SLC and RHCC. Under that procedure, the consolidated USAC

Board would submit to the Chairman of the Commission a candidate to

serve as the USAC CEO. Bell Atlantic supports this proposal. The

Pennsylvania Public Utility Commission supports approval of the USAC

CEO by the Chairman of the Commission, but recommends referral to the

other commissioners ``to ensure greater visibility and

accountability.'' By contrast, BellSouth recommends selection by the

USAC Board, subject to

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removal for good cause by the Chairman of the Commission. We conclude

that the USAC Board should have the primary responsibility for

selection of a CEO, and that approval by the Chairman of the Commission

ensures appropriate oversight.

I. Compensation Limitations

27. In a recent order regarding funding levels under the schools

and libraries mechanism, the Commission concluded that, effective July

1, 1998, the Administrator must, as a condition of its continued

service, compensate all officers and employees of SLC and RHCC at an

annual rate of pay, including any non-regular payments, bonuses, or

other compensation, that does not exceed the rate of basic pay in

effect for Level I of the Executive Schedule under 47 U.S.C. 5312.

Congress's intent regarding the level of compensation for officers and

employees of the revised administrative structure was stated clearly in

both section 2005(c) of the Senate bill and the Conference Report.

Although few parties commented on the issue of salary limitations,

those who addressed the issue support the imposition of such

limitations on all officers and employees of the consolidated USAC. The

Senate and the House-Senate conferees stated that compensation

limitations should be imposed on the officers and employees of the

entity to be proposed under section 2005(b)(2) of the Senate bill.

Thus, consistent with the will of Congress, we direct the consolidated

USAC to compensate all officers and employees under the consolidated

USAC at an annual rate of pay, including any non-regular payments,

bonuses, or other compensation, that does not exceed the rate of basic

pay in effect for Level I of the Executive Schedule under 47 U.S.C.

5312. These compensation limitations shall apply to officers and

employees who will administer the schools, libraries, rural health

care, high cost, and low income support mechanisms, as well as those

responsible for USAC's billing, collection and disbursement functions.

28. We decline at this time to extend the salary limitations to

NECA inasmuch as Congress did not direct the imposition of salary

limitations on NECA. The commenters that address the issue maintain

that it would be inappropriate to apply such limitations. We agree with

commenters and do not extend salary limitations to NECA.

III. Administrative Efficiencies Under the Unified Structure

29. Congress has directed the Commission to have a single entity

administer the schools and libraries and rural health care support

mechanisms. We have reviewed the proposals set forth in the Plan to

assess whether, where possible, corporate operations will be

consolidated to eliminate duplicative functions. In those instances

where the Plan proposes to maintain separate operations, we have

evaluated whether such separate operations will further the goal of

preserving the distinct missions of the four support mechanisms. We

find that the functions that the Plan proposes to consolidate will

improve the efficiency and effectiveness with which the universal

service support mechanisms are administered. We likewise conclude that

the retention of separate operations for certain functions that are

unique to a particular support mechanism ensures that the

administrative systems and expertise that SLC and RHCC have developed

will be preserved in the revised administrative structure. Moreover,

because the Plan proposes to consolidate most functions, we believe

that this streamlined administrative structure will facilitate the

Commission's oversight of universal service administration. Subject to

the modifications and clarifications set forth, we adopt the Plan's

proposals for consolidating operations. Accordingly, we direct USAC,

SLC, and RHCC to enter into a merger agreement that reflects the

proposal set forth in the Plan, as modified and clarified herein.

30. The Plan suggests that it may be more efficient to have a

consolidated USAC website, but initially proposes to retain the SLC and

RHCC websites. The American Library Association questions the prudence

of merging the websites at all, in light of SLC's and RHCC's different

organizational approaches. We find that the websites should be

reorganized and consolidated. Blooston, Mordkofsky, Jackson & Dickens

(Blooston) notes that currently there is no consistency as to where

information regarding the universal service support mechanisms now may

be found. We conclude that a separate USAC website should be created

and that the information now found on the SLC and RHCC websites should

be merged into the USAC website. We find that a single consolidated

USAC website is consistent with our goal of eliminating duplicative

functions, and that a consolidated website for all four universal

service support mechanisms will be easier to utilize. Accordingly, we

direct USAC to report to the Commission by December 31, 1998 the date

by which it could consolidate the website. In the interim, as proposed

in the Plan, we direct USAC to provide links among all the relevant

websites.

31. We also direct USAC to submit to the Commission for approval,

as suggested in the Plan and consistent with the Commission's rules, a

proposed method for allocating costs among the four support mechanisms

by December 31, 1998. We approve of the Plan's proposal to retain

common outside counsel for use by all divisions and committees. Outside

counsel shall perform work only as directed by the USAC CEO. USAC may

hire additional in-house counsel to perform work on its behalf if USAC

determines that doing so would be more cost effective than retaining

outside counsel to perform such work.

32. We adopt the Plan's proposal regarding merging the

corporations. In implementing the merger, USAC may assume, where

appropriate, SLC's and RHCC's contracts with employees and

subcontractors. To the extent USAC determines that the recision or

modification of certain contracts will result in efficiencies or other

benefits, USAC may rescind or modify such contracts, in accordance with

applicable law.

33. The American Library Association contends that it is unclear

whether the Plan will improve efficiency or effectiveness. We will

review USAC's performance after one year from the merger to assess

whether USAC has succeeded in eliminating duplicative functions and

whether it has succeeded in preserving the distinct missions of the

schools and libraries and rural health care support mechanisms. We also

require USAC to submit an annual report by March 31 of each year

detailing its activities and accomplishments for the prior year. We

will continue to evaluate ways of achieving greater efficiency,

effectiveness, and accountability in the administration of universal

service.

IV. Procedures for Review of USAC Decisions

34. We agree with commenters that affected parties should have the

right to appeal USAC division, committee, and Board decisions directly

to the Commission. The majority of commenters opposes requiring

affected parties to seek review of USAC division decisions from the

appropriate USAC Committee of the Board or the full USAC Board before

filing an appeal with the Commission. Commenters generally maintain

that direct appeal to

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the Commission is necessary to ensure adequate oversight of USAC's

operations. Commenters further argue that review by USAC in the first

instance would be burdensome and would cause unnecessary delays in

obtaining a final decision. We find that Commission oversight will be

strengthened by an appeals process that ensures that matters are

brought promptly to the Commission. Requiring affected parties to seek

review from a Committee of the Board or the full USAC Board in the

first instance might cause unnecessary delay in the appeals process

without, as MCI notes, any identifiable benefit.

35. We also agree with USAC and SLC that affected parties should be

encouraged to bring issues to the attention of the division head or the

USAC CEO to determine whether the matter can be handled without a

formal appeal to the Commission. We anticipate that, under certain

circumstances, a party may prefer to seek redress initially from the

appropriate Committee of the Board or the full USAC Board. Accordingly,

we conclude that affected parties should have the option of seeking

redress from a Committee of the Board or, if the matter concerns a

billing, collection, or disbursement matter that falls outside of the

jurisdiction of a particular committee, from the full USAC Board. We

encourage parties to seek redress in the first instance from Committees

of the Board for matters that involve straightforward application of

the Commission's rules. To the extent that affected parties can obtain

prompt resolution of such disputes, support mechanism participants will

be better served and limited Commission resources will be conserved.

Although Intermedia recommends excluding USAC internal administrative

decisions from the appeal process, we do not believe that any benefits

would be realized from limiting the types of decisions that may be

appealed to the Commission. We believe that the option of seeking

redress from USAC or the Commission addresses BellSouth's concerns

regarding the due process guarantees of the APA.

36. As proposed in the July 15 Public Notice, we delegate to the

Bureau the authority to rule on petitions for review of USAC division,

committee, or Board decisions that do not raise novel questions of

fact, law, or policy. This delegation to the Bureau is consistent with

the Commission's authority under section 5(c) of the Act to delegate

particular functions to staff in the first instance, subject to the

filing of applications for review with the Commission. Petitions that

raise novel questions of fact, law, or policy shall be brought before

the full Commission. As with other decisions made by the Bureau acting

pursuant to its delegated authority, parties may seek Commission review

of any Bureau decision. The Bureau also would have the authority to

review the decisions of USAC at any time on its own motion. Contrary to

GTE's claims that Bureau involvement is unnecessary and will result in

delay, we believe that granting the Bureau delegated authority to

review petitions that do not raise novel questions of fact, law, or

policy will facilitate prompt resolution of routine or settled matters.

37. Furthermore, consistent with the Commission's ultimate

responsibility over the universal service support mechanisms, we

conclude that USAC decisions, whether considered by the Bureau or the

Commission, should be subject to de novo review. Accordingly, we

decline to adopt USAC's and SLC's recommendation that the Commission

uphold USAC decisions without considering the merits of the appeal if

the Commission finds that USAC has not exceeded its authority and has

acted consistently with the Commission's rules.

38. In response to commenters' requests for a streamlined appeals

process, we conclude that an affected party will have thirty (30) days

to file an appeal of a USAC decision. This thirty (30) day period will

begin to run from the date of issuance of a USAC decision. The filing

of an appeal to a Committee of the Board or the full Board will toll

the time period for filing an appeal with the Commission. For matters

that are not new or novel, and may be decided by the Bureau, we further

find that we should establish a streamlined process for review. If the

Bureau takes no action within ninety (90) days upon an appeal properly

before it, USAC's decision will be deemed approved. We are confident

that a 90-day period will provide an adequate opportunity for review,

in most cases, and the Bureau, within that 90-day period, may take

action to extend the period of review. For appeals that are properly

before the Commission, a written decision will be issued within 90 days

unless the Commission takes action to extend the period for review;

under no circumstances will an appeal before the full Commission be

deemed approved as a result of inaction on the part of the Commission.

We expect that the Bureau and the Commission will act promptly to

resolve appeals of USAC decisions. Based on this expectation, we do not

adopt BellSouth's suggestion that the Commission adopt a mechanism

similar to the accelerated review process adopted for complaints filed

under section 208 of the Act.

39. To facilitate prompt resolution by the Commission of appeals of

USAC decisions, we also adopt specific filing requirements for such

petitions. The appellant must state specifically its interest in the

matter presented for review. The appellant also must provide the

Commission with a full statement of relevant, material facts with

supporting affidavits and documentation. In addition, the appellant

must state concisely the question presented for review, with reference,

where appropriate, to the relevant Commission rule, Commission order,

or statutory provision. The appellant also must state the relief sought

and the relevant statutory or regulatory provision pursuant to which

such relief is sought. If an appellant alleges prohibited conduct by a

third party, the appellant shall serve a copy of the appeal on such

third party, who shall have an opportunity to file an opposition.

Similarly, appellants shall serve on USAC a copy of the appeal of a

USAC decision filed with the Commission. We encourage USAC to file

comments setting forth USAC's position on the issues raised in the

appeal. We believe that USAC's comments may aid the Commission in

understanding the nature of the disputed issues and facilitate a timely

resolution of the matter. We decline to adopt Weisiger's recommendation

that the applications for discounted services provide information

regarding beneficiaries' right to seek review of USAC decisions.

40. We note that BellSouth questions whether the Commission has

jurisdiction to adjudicate a dispute involving a non-telecommunications

carrier. We find that the Commission has the authority to review USAC

decisions, regardless of the identity of the parties, because USAC is

administering the universal service support mechanisms for the

Commission, subject to Commission rules and oversight.

41. We decline to adopt SBC's proposal, supported by GTE, NTCA, and

Ameritech, that the appeal procedures should apply to decisions

previously rendered by USAC, SLC, and RHCC. Specifically, SBC proposes

that affected parties be granted sixty (60) days from the effective

date of our rules to appeal prior USAC, SLC, or RHCC decisions. Parties

seeking redress from previously issued decisions of USAC, SLC, and RHCC

have not been prevented from appealing those decisions to the

Commission under existing Commission

[[Page 70570]]

procedures. Indeed, several parties have filed appeals with the

Commission. Thus, we conclude that retroactive application of these

appeal procedures is not warranted.

42. The July 15 Public Notice also proposed that, if an application

for discounted services or support is approved, and that approval is

appealed to the Commission, the pendency of that appeal would not

affect the eligibility of the applicant to receive discounted services,

nor would it prevent reimbursement of service providers for discounted

services provided to such applicants. We conclude that, until the

Bureau or the full Commission has resolved an appeal of a USAC

decision, an applicant will not be permitted to receive discounted

services and service providers will not be permitted to receive

reimbursement for discounted services provided to such applicants. We

believe that withholding support during the pendency of an appeal will

reduce the likelihood that support is disbursed in error. We further

find that, because requests for review of USAC decisions that are

properly before the Bureau will be deemed approved if the Bureau takes

no action within 90 days, and because the full Commission is committed

to issuing decisions within 90 days, parties will have limited ability

to delay support and discounts for a substantial period of time merely

by filing an appeal.

V. Implementation Issues

A. Submission and Approval of Merger Documents

43. Consistent with our adoption of the Plan as modified herein, we

direct USAC, SLC, and RHCC to submit draft merger documents to the

Commission by December 1, 1998. We also direct USAC to submit to the

Commission by December 1, 1998, draft revised by-laws and articles of

incorporation. The Commission delegates to the Bureau the authority to

review and approve the merger documents, revised by-laws and revised

articles of incorporation. Such documents should be consistent with the

requirements of this Order and consistent with principles and

requirements of Delaware state law. The Bureau will indicate its

approval of the documents in a public notice. Upon consummation of the

merger and the filing of the revised by-laws, SLC and RHCC shall take

all steps necessary to dissolve SLC and RHCC in accordance with

Delaware state law.

B. Effective Date of Rules

44. In this Order, the Commission directs that SLC and RHCC merge

into USAC as the single entity responsible for administering the

universal service mechanisms by January 1, 1999. To ensure that USAC is

able to meet the January 1, 1999 deadline, the Commission directs USAC

to submit to the Commission by December 1, 1998 USAC's draft merger

documents and draft revised by-laws. Thus, we make this requirement

effective December 1, 1998, which may occur within fewer than thirty

(30) days after publication in the Federal Register of the rules

adopted in this Order. In this Order, we also adopt rules that will

govern USAC following the required merger. Accordingly, these rules

must take effect upon the required consummation of the merger on

January 1, 1999, which may occur fewer than thirty (30) days after

publication in the Federal Register of the rules adopted in this Order.

These actions are necessary to ensure completion of the merger by the

January 1, 1999 deadline that the Commission proposed in the Report to

Congress in an effort to respond promptly to Congress's directive that

the Commission establish a single entity to administer universal

service. In addition, the parties required to take these actions--SLC,

RHCC, and USAC--will have actual notice of their obligations when the

Commission adopts this Order. Accordingly, we find good cause to depart

in the manner described from the general requirement of 5 U.S.C. 553(d)

that final rules take effect not less than thirty (30) days after their

publication in the Federal Register.

VI. Final Regulatory Flexibility Analysis

45. The Regulatory Flexibility Act (RFA) requires that a regulatory

flexibility analysis be prepared for notice-and-comment rulemaking

proceedings, unless the agency certifies that ``the rule will not, if

promulgated, have a significant economic impact on a substantial number

of small entities.'' The RFA generally defines ``small entity'' as

having the same meaning as the terms ``small business,'' ``small

organization,'' and ``small governmental jurisdiction.'' A small

organization is generally ``any not-for-profit enterprise which is

independently owned and operated and is not dominant in its field.''

This regulatory flexibility certification supplements our prior

certifications and analyses in this proceeding. The Commission will

send a copy of this Order, including a copy of this final

certification, in a report to Congress pursuant to the Small Business

Regulatory Enforcement Fairness Act of 1996. In addition, this Order

and certification will be sent to the Chief Counsel for Advocacy of the

Small Business Administration, and will be published in the Federal

Register.

46. This Order directs the merger of SLC and RHCC into USAC as the

single entity responsible for administering the universal service

support mechanisms. In addition, we adopt specific procedures under

which administrative decisions made by USAC will be reviewable by the

Commission, including the requirements for filing review petitions with

the Commission. Pursuant to the RFA, and as described, we certify that

these actions will not have a significant economic impact on a

substantial number of small entities.

47. Regarding the subject merger, in the NECA Order, 62 FR 41294

(August 1, 1997), the Commission directed NECA, as a condition of its

service as temporary Administrator of the universal service support

mechanisms, to create an independent subsidiary, USAC, to administer

temporarily certain aspects of the universal service support mechanisms

and to establish SLC and RHCC to administer specific aspects of the

universal service mechanisms for schools and libraries and rural health

care providers. In that order, the Commission also concluded that NECA

is not a small organization within the meaning of the RFA, finding that

NECA is a non-profit association that was created to administer the

Commission's interstate access tariff and revenue distribution

processes. On this basis, the Commission certified pursuant to the RFA

that the rules adopted in the NECA Order would not have a significant

economic impact on a substantial number of small entities.

48. In the July 15 Public Notice, the Bureau sought comment on the

proposed plan to merge SLC and RHCC into USAC as the single entity

responsible for the administration of the universal service support

mechanisms for schools and libraries and rural health care providers.

For the reasons stated in the NECA Order, the Bureau found that NECA is

not a small organization within the meaning of the RFA. Similarly,

USAC, as a wholly-owned, non-profit subsidiary of NECA, is not a small

organization. SLC and RHCC are non-profit corporations created by NECA

as a condition of its service as temporary Administrator. The Bureau

tentatively certified that, even if NECA, USAC, SLC, and RHCC are small

entities, the reorganization of SLC, RHCC, and USAC would affect

directly only those four entities and thus would not have a direct,

significant economic impact on a substantial number of small

[[Page 70571]]

entities. The Bureau requested comment on this matter.

49. Under the rules adopted in this Order, USAC will serve as the

single entity responsible for administering all of the universal

service support mechanisms as of January 1, 1999. The Commission

received no comments requesting that we modify our previous

certification that the reorganization of SLC, RHCC, and USAC will not

have a significant economic impact on a substantial number of small

entities. We hereby certify pursuant to the RFA, 5 U.S.C. 605(b), that

the rules adopted in this Order directing the merger of SLC and RHCC

into USAC as the permanent Administrator of the universal service

support mechanisms will not have a significant economic impact on a

substantial number of small entities.

50. Regarding the adoption of specific procedures under which

administrative decisions made by USAC will be reviewable by the

Commission, we note that, in the Final Regulatory Flexibility Analysis

to the Universal Service Order, 62 FR 32862 (June 17, 1997), we

described and estimated the number of small entities that might be

affected significantly by the new universal service rules, including

the rule requiring telecommunications carriers and other entities to

contribute to the universal service support mechanisms. These entities

included telephone companies and similar entities, including wireless

entities; cable system operators and similar entities, including DBS

and international entities; municipalities; rural health care

providers; schools; and libraries. The rules adopted here, which set

forth the procedures by which affected parties may seek Commission

review of administrative decisions made by USAC, will apply to those

same telecommunications carriers and entities. In the July 15 Public

Notice, the Bureau tentatively certified that the rule amendments under

consideration would not have a significant economic impact on a

substantial number of small entities, noting that the rules, which

would afford entities multiple options in seeking review, would likely

have a beneficial impact on such entities. The Bureau requested comment

specifically on this tentative conclusion. No such comments were filed.

51. In this Order, the Commission adopts, inter alia, procedures

under which affected parties may appeal USAC division, committee, and

Board decisions directly to the Commission. This decision affords

parties options for seeking review of USAC decisions and as a result,

the economic effect of such change should, if anything, be beneficial.

In addition, we adopt specific requirements for filing review petitions

with the Commission under these rules. We find that the filing

requirements we adopt are merely procedural in nature and are no more

onerous than other, similar filing requirements in the Commission's

rules; as such they will not result in a significant economic impact on

entities that choose to file under the rules. We therefore certify that

the rules we adopt to afford direct review of USAC decisions by the

Commission, including the requirements for filing review petitions with

the Commission, will not have a significant economic impact on a

substantial number of small entities.

VII. Ordering Clauses

52. Accordingly, it is ordered that, pursuant to the authority

contained in sections 1-4, 201-205, 218-220, 254, 303(r), 403 and 405

of the Communications Act of 1934, as amended, 47 U.S.C. 151-154, 201-

205, 218-220, 254, 303(r), 403 and 405, section 553 of the

Administrative Procedure Act, 5 U.S.C. 553, and 47 CFR 1.108, the Third

Report and Order in CC Docket No. 97-21, Fourth Order on

Reconsideration in CC Docket No. 97-21 and Eighth Order on

Reconsideration in CC Docket No. 96-45 is adopted.

53. It is further ordered that, pursuant to the authority contained

in sections 1-4, 201-205, 218-220, 254, 303(r), 403 and 405 of the

Communications Act of 1934, as amended, 47 U.S.C. 151-154, 201-205,

218-220, 254, 303(r), 403 and 405, section 553 of the Administrative

Procedure Act, 5 U.S.C. 553, and 47 CFR 1.108, Part 54 of the

Commission's rules, 47 CFR Parts 54 and 69, are amended.

54. It is further ordered that, because the Commission has found

good cause, this Order and 47 CFR 54.701, as amended, are effective on

December 1, 1998, which may be less than thirty (30) days after

publication in the Federal Register.

55. It is further ordered that the merger of SLC and RHCC into USAC

shall be consummated by January 1, 1999.

56. It is further ordered that, because the Commission has found

good cause, except as otherwise provided herein, the rule changes set

forth are effective on January 1, 1999, which may be less than thirty

(30) days after publication in the Federal Register.

57. It is further ordered that, upon consummation of the merger of

SLC and RHCC into USAC, SLC and RHCC shall be dissolved, in accordance

with applicable state law.

58. It is further ordered that the Commission's Office of Public

Affairs, Reference Operations Division, shall send a copy of this

Order, including the Final Regulatory Flexibility Certification, to the

Chief Counsel for Advocacy of the Small Business Administration.

59. It is further ordered that the information collections

contained in 47 CFR 54.703(c) and 54.721 of the Commission's rules,

will become effective following approval from the Office of Management

and Budget.

List of Subjects

47 CFR Part 54

Healthcare providers, Libraries, Reporting and recordkeeping

requirements, Schools, Telecommunications, Telephone.

47 CFR Part 69

Communications common carriers, Reporting and recordkeeping

requirements, Telephone.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

Rule Changes

Parts 54 and 69 of Title 47 of the Code of Federal Regulations are

amended to read as follows:

PART 54--UNIVERSAL SERVICE

1. The authority citation for part 54 continues to read as follows:

Authority: 47 U.S.C. 1, 4(i), 201, 205, 214, and 254 unless

otherwise noted.

2. In Sec. 54.5 remove the terms High Cost and Low Income

Committee, Rural Health Care Corporation, and Schools and Libraries

Corporation and the definitions of those terms; revise the definition

of the term Administrator; add the definition of the term website in

alphabetical order as follows:

Sec. 54.5 Terms and definitions.

* * * * *

Administrator. The term ``Administrator'' shall refer to the

Universal Service Administrative Company that is an independent

subsidiary of the National Exchange Carrier Association, Inc., and that

has been appointed the permanent Administrator of the federal universal

service support mechanisms.

* * * * *

Website. The term ``website'' shall refer to any websites operated

by the Administrator in connection with the schools and libraries

support mechanism, the rural health care support mechanism, the high

cost

[[Page 70572]]

mechanism, and the low income mechanism.

3. In Sec. 54.504 remove the words ``Schools and Libraries

Corporation'' in paragraphs (b)(1), (b)(2)(vii), (b)(3), and (c) and

add, in its place, the word ``Administrator'', and revise paragraph

(b)(4) to read as follows:

Sec. 54.504 Requests for services.

* * * * *

(b) * * *

(4) After posting on the Administrator's website an eligible

school's, library's, or consortium's FCC Form 470, the Administrator

shall send confirmation of the posting to the entity requesting

service. That entity shall then wait at least four weeks from the date

on which its description of services is posted on the Administrator's

website before making commitments with the selected providers of

services. The confirmation from the Administrator shall include the

date after which the requestor may sign a contract with its chosen

provider(s).

* * * * *

Sec. 54.505 [Amended]

4. In Sec. 54.505 remove the words ``Schools and Libraries

Corporation'' in paragraphs (b)(3) and (c) and add, in its place, the

word ``Administrator.''

5. In Sec. 54.507 remove the words ``Schools and Libraries

Corporation'' in paragraphs (e) through (f), the introductory text to

(g), (g)(1) and add, in its place, the word ``Administrator'', and

revise paragraphs (c), (g)(2)(i) and (g)(2)(iv) to read as follows:

Sec. 54.507 Cap.

* * * * *

(c) Requests. Funds shall be available to fund discounts for

eligible schools and libraries and consortia of such eligible entities

on a first-come-first-served basis, with requests accepted beginning on

the first of July prior to each funding year. The Administrator shall

maintain on the Administrator's website a running tally of the funds

already committed for the existing funding year. The Administrator

shall implement an initial filing period that treats all schools and

libraries filing within that period as if their applications were

simultaneously received. The initial filing period shall begin on the

date that the Administrator begins to receive applications for support,

and shall conclude on a date to be determined by the Administrator. The

Administrator may implement such additional filing periods as it deems

necessary.

* * * * *

(g) * * *

(2) * * *

(i) The Administrator or the Administrator's subcontractor shall

post a message on the Administrator's website, notify the Commission,

and take reasonable steps to notify the educational and library

communities that commitments for the remaining $250 million of support

will only be made to the most economically disadvantaged schools and

libraries (those in the two most disadvantaged categories) for the next

30 days or the remainder of the funding year, whichever is shorter.

* * * * *

(iv) After all requests submitted by schools and libraries

described in paragraphs (g)(2) and (g)(3) of this section during the

30-day period have been met, the Administrator shall allocate the

remaining available funds to all other eligible schools and libraries

in the order in which their requests have been received by the

Administrator, until the $250 million is exhausted or the funding year

ends.

* * * * *

6. In Sec. 54.509 remove the words ``Schools and Libraries

Corporation'' in paragraph (b) and add, in its place, the word

``Administrator'' and revise paragraph (c) to read as follows:

Sec. 54.509 Adjustments to the discount matrix.

* * * * *

(c) Remaining funds. If funds remain under the cap at the end of

the funding year in which discounts have been reduced below those set

in the matrices, the Administrator shall consult with the Commission to

establish the best way to distribute those funds.

Sec. 54.511 [Amended]

7. In Sec. 54.511 remove the words ``Schools and Libraries

Corporation'' in paragraph (c)(3) and add, in its place, the word

``Administrator.''

Sec. 54.516 [Amended]

8. In Sec. 54.516 remove the words ``Schools and Libraries

Corporation'' in paragraph (b) and add, in its place, the word

``Administrator.''

Sec. 54.603 [Amended]

9. In Sec. 54.603 remove the words ``Rural Health Care

Corporation'' in paragraphs (a)(1) through (5) and add, in its place,

the word ``Administrator.''

Sec. 54.604 [Amended]

10. In Sec. 54.604 remove the words ``Rural Health Care

Corporation'' in paragraph (c) and add, in its place, the word

``Administrator.''

Sec. 54.605 [Amended]

11. In Sec. 54.605 remove the words ``Rural Health Care

Corporation'' in paragraph (e) and add, in its place, the word

``Administrator.''

Sec. 54.609 [Amended]

12. In Sec. 54.609 remove the words ``Rural Health Care

Corporation'' in paragraph (b) and add, in its place, the word

``Administrator.''

Sec. 54.619 [Amended]

13. In Sec. 54.619 remove the words ``Rural Health Care

Corporation'' in paragraphs (b) and (d) and add, in its place, the word

``Administrator.''

Sec. 54.623 [Amended]

14. In Sec. 54.623 remove the words ``Rural Health Care

Corporation'' in paragraphs (c), (e) through (f) and add, in its place,

the word ``Administrator.''

Sec. 54.625 [Amended]

15. In Sec. 54.625 remove the words ``Rural Health Care

Corporation'' in paragraph (a) and add, in its place, the word

``Administrator.''

16. Revise Sec. 54.701 to read as follows:

Sec. 54.701 Administrator of universal service support mechanisms.

(a) The Universal Service Administrative Company is appointed the

permanent Administrator of the federal universal service support

mechanisms, subject to a review after one year by the Federal

Communications Commission to determine that the Administrator is

administering the universal service support mechanisms in an efficient,

effective, and competitively neutral manner.

(b) The Schools and Libraries Corporation and the Rural Health Care

Corporation shall merge into the Universal Service Administrative

Company by January 1, 1999; provided, however, that the merger shall

not take place until the Common Carrier Bureau, acting pursuant to

delegated authority, has approved the merger documents, the amended by-

laws, and the amended articles of incorporation, as set forth in

paragraphs (c) and (d) of this section.

(c) By December 1, 1998, the Schools and Libraries Corporation, the

Rural Health Care Corporation and the Universal Service Administrative

Company shall file with the Federal Communications Commission draft

copies of all documents necessary to effectuate the merger.

(d) By December 1, 1998, the Universal Service Administrative

Company shall file with the Federal Communications Commission draft

[[Page 70573]]

copies of amended by-laws and amended articles of incorporation.

(e) Upon consummation of the merger of the Schools and Libraries

Corporation and the Rural Health Care Corporation into the Universal

Service Administrative Company, the Schools and Libraries Corporation

and the Rural Health Care Corporation shall take all steps necessary to

dissolve such corporations.

(f) The Administrator shall establish a nineteen (19) member Board

of Directors, as set forth in Sec. 54.703. The Administrator's Board of

Directors shall establish three Committees of the Board of Directors,

as set forth in Sec. 54.705: (1) the Schools and Libraries Committee,

which shall oversee the schools and libraries support mechanism; (2)

the Rural Health Care Committee, which shall oversee the rural health

care support mechanism; and (3) the High Cost and Low Income Committee,

which shall oversee the high cost and low income support mechanism. The

Board of Directors shall not modify substantially the power or

authority of the Committees of the Board without prior approval from

the Federal Communications Commission.

(g) The Administrator shall establish three divisions: (1) the

Schools and Libraries Division, which shall perform duties and

functions in connection with the schools and libraries support

mechanism under the direction of the Schools and Libraries Committee of

the Board, as set forth in Sec. 54.705(a); (2) the Rural Health Care

Division, which shall perform duties and functions in connection with

the rural health care support mechanism under the direction of the

Rural Health Care Committee of the Board, as set forth in

Sec. 54.705(b); and (3) the High Cost and Low Income Division, which

shall perform duties and functions in connection with the high cost and

low income support mechanism under the direction of the High Cost and

Low Income Committee of the Board, as set forth in Sec. 54.705(c). As

directed by the Committees of the Board set forth in Sec. 54.705, these

divisions shall perform the duties and functions unique to their

respective support mechanisms.

(h) The Administrator shall be managed by a Chief Executive

Officer, as set forth in Sec. 54.704. The Chief Executive Officer shall

serve on the Committees of the Board established in Sec. 54.705.

17. Add a new Sec. 54.702 to read as follows:

Sec. 54.702 Administrator's functions and responsibilities.

(a) The Administrator, and the divisions therein, shall be

responsible for administering the schools and libraries support

mechanism, the rural health care support mechanism, the high cost

support mechanism and the low income support mechanism.

(b ) The Administrator shall be responsible for billing

contributors, collecting contributions to the universal service support

mechanisms, and disbursing universal service support funds.

(c) The Administrator may not make policy, interpret unclear

provisions of the statute or rules, or interpret the intent of

Congress. Where the Act or the Commission's rules are unclear, or do

not address a particular situation, the Administrator shall seek

guidance from the Commission.

(d) The Administrator may advocate positions before the Commission

and its staff only on administrative matters relating to the universal

service support mechanisms.

(e) The Administrator shall maintain books of account separate from

those of the National Exchange Carrier Association, of which the

Administrator is an independent subsidiary. The Administrator's books

of account shall be maintained in accordance with generally accepted

accounting principles. The Administrator may borrow start up funds from

the National Exchange Carrier Association. Such funds may not be drawn

from the Telecommunications Relay Services (TRS) fund or TRS

administrative expense accounts.

(f) Pursuant to its responsibility for billing and collecting

contributions, the Administrator shall compare periodically information

collected by the administrator of the TRS Fund from TRS Fund Worksheets

with information submitted by contributors on Universal Service

Worksheets to verify the accuracy of information submitted on Universal

Service Worksheets. When performing a comparison of contributor

information as provided by this paragraph, the Administrator must

undertake company-by-company comparisons for all entities filing

Universal Service and TRS Fund Worksheets.

(g) The Administrator shall create and maintain a website, as

defined in Sec. 54.5, on which applications for services will be posted

on behalf of schools, libraries and rural health care providers.

(h) The Administrator shall file with the Commission and Congress

an annual report by March 31 of each year. The report shall detail the

Administrator's operations, activities, and accomplishments for the

prior year, including information about participation in each of the

universal service support mechanisms and administrative action intended

to prevent waste, fraud, and abuse. The report also shall include an

assessment of subcontractors' performance, and an itemization of

monthly administrative costs that shall include all expenses, receipts,

and payments associated with the administration of the universal

service support programs. The Administrator shall consult each year

with Commission staff to determine the scope and content of the annual

report.

(i) The Administrator shall report quarterly to the Commission on

the disbursement of universal service support program funds. The

Administrator shall keep separate accounts for the amounts of money

collected and disbursed for eligible schools and libraries, rural

health care providers, low-income consumers, and high cost and insular

areas.

(j) Information based on the Administrator's reports will be made

public by the Commission at least once a year as part of a Monitoring

Report.

(k) The Administrator shall provide the Commission full access to

the data collected pursuant to the administration of the universal

service support programs.

(l) Pursuant to Sec. 64.903 of this chapter, the Administrator

shall file with the Commission a cost allocation manual (CAM) that

describes the accounts and procedures the Administrator will use to

allocate the shared costs of administering the universal service

support mechanisms and its other operations.

(m) The Administrator shall make available to whomever the

Commission directs, free of charge, any and all intellectual property,

including, but not limited to, all records and information generated by

or resulting from its role in administering the support mechanisms, if

its participation in administering the universal service support

mechanisms ends.

(n) If its participation in administering the universal service

support mechanisms ends, the Administrator shall be subject to close-

out audits at the end of its term.

18. Revise Sec. 54.703 to read as follows:

Sec. 54.703 The Administrator's Board of Directors.

(a) The Administrator shall have a Board of Directors separate from

the Board of Directors of the National Exchange Carrier Association.

The National Exchange Carrier Association's

[[Page 70574]]

Board of Directors shall be prohibited from participating in the

functions of the Administrator.

(b) Board composition. The independent subsidiary's Board of

Directors shall consist of nineteen (19) directors:

(1) Three directors shall represent incumbent local exchange

carriers, with one director representing the Bell Operating Companies

and GTE, one director representing ILECs (other than the Bell Operating

Companies) with annual operating revenues in excess of $40 million, and

one director representing ILECs (other than the Bell Operating

Companies) with annual operating revenues of $40 million or less;

(2) Two directors shall represent interexchange carriers, with one

director representing interexchange carriers with more than $3 billion

in annual operating revenues and one director representing

interexchange carriers with annual operating revenues of $3 billion or

less;

(3) One director shall represent commercial mobile radio service

(CMRS) providers;

(4) One director shall represent competitive local exchange

carriers;

(5) One director shall represent cable operators;

(6) One director shall represent information service providers;

(7) Three directors shall represent schools that are eligible to

receive discounts pursuant to Sec. 54.501;

(8) One director shall represent libraries that are eligible to

receive discounts pursuant to Sec. 54.501;

(9) Two directors shall represent rural health care providers that

are eligible to receive supported services pursuant to Sec. 54.601;

(10) One director shall represent low-income consumers;

(11) One director shall represent state telecommunications

regulators;

(12) One director shall represent state consumer advocates; and

(13) The Chief Executive Officer of the Administrator.

(c) Selection process for board of directors. (1) Sixty (60) days

prior to the expiration of a director's term, the industry or non-

industry group that is represented by such director on the

Administrator's Board of Directors, as specified in paragraph (b) of

this section, shall nominate by consensus a new director. The industry

or non-industry group shall submit the name of its nominee for a seat

on the Administrator's Board of Directors, along with relevant

professional and biographical information about the nominee, to the

Chairman of the Federal Communications Commission. Only members of the

industry or non-industry group that a Board member will represent may

submit a nomination for that position.

(2) The name of an industry or non-industry group's nominee shall

be filed with the Office of the Secretary of the Federal Communications

Commission in accordance with part 1 of this chapter. The document

nominating a candidate shall be captioned ``In the matter of:

Nomination for Universal Service Administrator's Board of Directors''

and shall reference FCC Docket Nos. 97-21 and 96-45. Each nomination

shall specify the position on the Board of Directors for which such

nomination is submitted. Two copies of the document nominating a

candidate shall be submitted to the Common Carrier Bureau's Accounting

Policy Division.

(3) The Chairman of the Federal Communications Commission shall

review the nominations submitted by industry and non-industry groups

and select each director of the Administrator's Board of Directors, as

each director's term expires pursuant to paragraph (d) of this section.

If an industry or non-industry group does not reach consensus on a

nominee or fails to submit a nomination for a position on the

Administrator's Board of Directors, the Chairman of the Federal

Communications Commission shall select an individual to represent such

group on the Administrator's Board of Directors.

(d) Board member terms. The directors on the Administrator's Board

shall be appointed for three-year terms, except that the Chief

Executive Officer shall be a permanent member of the Board. Board

member terms shall run from January 1 of the first year of the term to

December 31 of the third year of the term, except that, for purposes of

the term beginning on January 1, 1999, the terms of six directors shall

expire on December 31, 2000, the terms of another six directors on

December 31, 2001, and the terms of the remaining six directors on

December 31, 2002. Directors may be reappointed for subsequent terms

pursuant to the initial nomination and appointment process described in

paragraph (c) of this section. If a Board member vacates his or her

seat prior to the completion of his or her term, the Administrator will

notify the Common Carrier Bureau of such vacancy, and a successor will

be chosen pursuant to the nomination and appointment process described

in paragraph (c) of this section.

(e) All meetings of the Administrator's Board of Directors shall be

open to the public and held in Washington, D.C.

(f) Each member of the Administrator's Board of Directors shall be

entitled to receive reimbursement for expenses directly incurred as a

result of his or her participation on the Administrator's Board of

Directors.

19. Add a new Sec. 54.704 to read as follows:

Sec. 54.704 The Administrator's Chief Executive Officer.

(a) Chief Executive Officer's functions. (1) The Chief Executive

Officer shall have management responsibility for the administration of

the federal universal service support mechanisms.

(2) The Chief Executive Officer shall have management

responsibility for all employees of the Universal Service

Administrative Company. The Chief Executive Officer may delegate such

responsibility to heads of the divisions established in Sec. 54.701(g).

(3) The Chief Executive Officer shall serve on the Administrator's

Board of Directors as set forth in Sec. 54.703(b) and on the Committees

of the Board established under Sec. 54.705.

(b) Selection process for the Chief Executive Officer. (1) The

members of the Board of Directors of the Administrator shall nominate

by consensus a Chief Executive Officer. The Board of Directors shall

submit the name of its nominee for Chief Executive Officer, along with

relevant professional and biographical information about the nominee,

to the Chairman of the Federal Communications Commission.

(2) The Chairman of the Federal Communications Commission shall

review the nomination submitted by the Administrator's Board of

Directors. Subject to the Chairman's approval, the nominee shall be

appointed as the Administrator's Chief Executive Officer.

(3) If the Board of Directors does not reach consensus on a nominee

or fails to submit a nomination for the Chief Executive Officer, the

Chairman of the Federal Communications Commission shall select a Chief

Executive Officer.

20. Revise Sec. 54.705 to read as follows:

Sec. 54.705 Committees of the Administrator's Board of Directors.

(a) Schools and Libraries Committee.--(1) Committee functions. The

Schools and Libraries Committee shall oversee the administration of the

schools and libraries support mechanism by the Schools and Libraries

Division. The Schools and Libraries Committee shall have the authority

to make decisions concerning:

(i) How the Administrator projects demand for the schools and

libraries support mechanism;

(ii) Development of applications and associated instructions as

needed for the

[[Page 70575]]

schools and libraries support mechanism;

(iii) Administration of the application process, including

activities to ensure compliance with Federal Communications Commission

rules and regulations;

(iv) Performance of outreach and education functions;

(v) Review of bills for services that are submitted by schools and

libraries;

(vi) Monitoring demand for the purpose of determining when the $2

billion trigger has been reached;

(vii) Implementation of the rules of priority in accordance with

Sec. 54.507(g) of this chapter;

(viii) Review and certification of technology plans when a state

agency has indicated that it will not be able to review such plans

within a reasonable time;

(ix) The classification of schools and libraries as urban or rural

and the use of the discount matrix established in Sec. 54.505(c) of

this chapter to set the discount rate to be applied to services

purchased by eligible schools and libraries;

(x) Performance of audits of beneficiaries under the schools and

libraries support mechanism; and

(xi) Development and implementation of other functions unique to

the schools and libraries support mechanism.

(2) Committee composition. The Schools and Libraries Committee

shall consist of the following members of the Administrator's Board of

Directors:

(i) Three school representatives;

(ii) One library representative;

(iii) One service provider representative;

(iv) One at-large representative elected by the Administrator's

Board of Directors; and

(v) The Administrator's Chief Executive Officer.

(b) Rural Health Care Committee.--(1) Committee functions. The

Rural Health Care Committee shall oversee the administration of the

rural health care support mechanism by the Rural Health Care Division.

The Rural Health Care Committee shall have authority to make decisions

concerning:

(i) How the Administrator projects demand for the rural health care

support mechanism;

(ii) Development of applications and associated instructions as

needed for the rural health care support mechanism;

(iii) Administration of the application process, including

activities to ensure compliance with Federal Communications Commission

rules and regulations;

(iv) Calculation of support levels under Sec. 54.609;

(v) Performance of outreach and education functions;

(vi) Review of bills for services that are submitted by rural

health care providers;

(vii) Monitoring demand for the purpose of determining when the

$400 million cap has been reached;

(viii) Performance of audits of beneficiaries under the rural

health care support mechanism; and

(ix) Development and implementation of other functions unique to

the rural health care support mechanism.

(2) Committee composition. The Rural Health Care Committee shall

consist of the following members of the Administrator's Board of

Directors:

(i) Two rural health care representatives;

(ii) One service provider representative;

(iii) Two at-large representatives elected by the Administrator's

Board of Directors;

(iv) One State telecommunications regulator, one state consumer

advocate; and

(v) The Administrator's Chief Executive Officer.

(c) High Cost and Low Income Committee.--(1) Committee functions.

The High Cost and Low Income Committee shall oversee the administration

of the high cost and low income support mechanisms by the High Cost and

Low Income Division. The High Cost and Low Income Committee shall have

the authority to make decisions concerning:

(i) How the Administrator projects demand for the high cost and low

income support mechanisms;

(ii) Development of applications and associated instructions as

needed for the high cost and low income support mechanisms;

(iii) Administration of the application process, including

activities to ensure compliance with Federal Communications Commission

rules and regulations;

(iv) Performance of audits of beneficiaries under the high cost and

low income support mechanisms; and

(v) Development and implementation of other functions unique to the

high cost and low income support mechanisms.

(2) Committee composition. The High Cost and Low Income Committee

shall consist of the following members of the Administrator's Board of

Directors:

(i) One low income representative;

(ii) One state telecommunications regulator;

(iii) One state consumer advocate;

(iv) Two incumbent local exchange carrier representatives (one

shall represent rural telephone companies, as that term is defined in

47 U.S.C. 153(37) and one shall represent non-rural telephone

companies);

(v) One interexchange carrier representative;

(vi) One competing local exchange carrier representative;

(vii) One commercial mobile radio service representative; and

(viii) The Administrator's Chief Executive Officer.

(d) Binding Authority of Committees of the Board.

(1) Any action taken by the Committees of the Board established in

paragraphs (a) through (c) of this section shall be binding on the

Board of Directors of the Administrator, unless such action is

presented for review to the Board by the Administrator's Chief

Executive Officer and the Board disapproves of such action by a two-

thirds vote of a quorum of directors, as defined in the Administrator's

by-laws.

(2) The budgets prepared by each Committee shall be subject to

Board review as part of the Administrator's combined budget. The Board

shall not modify the budgets prepared by the Committees of the Board

unless such modification is approved by a two-thirds vote of a quorum

of the Board, as defined in the Administrator's by-laws.

21. Add a new Sec. 54.706 to read as follows:

Sec. 54.706 Contributions.

(a) Entities that provide interstate telecommunications to the

public, or to such classes of users as to be effectively available to

the public, for a fee will be considered telecommunications carriers

providing interstate telecommunications services and must contribute to

the universal service support programs. Interstate telecommunications

include, but are not limited to:

(1) Cellular telephone and paging services;

(2) Mobile radio services;

(3) Operator services;

(4) Personal communications services (PCS);

(5) Access to interexchange service;

(6) Special access service;

(7) WATS;

(8) Toll-free service;

(9) 900 service;

(10) Message telephone service (MTS);

(11) Private line service;

(12) Telex;

(13) Telegraph;

(14) Video services;

(15) Satellite service;

(16) Resale of interstate services; and

(17) Payphone services.

(b) Every telecommunications carrier that provides interstate

[[Page 70576]]

telecommunications services, every provider of interstate

telecommunications that offers telecommunications for a fee on a non-

common carrier basis, and payphone providers that are aggregators shall

contribute to the programs for eligible schools, libraries, and health

care providers on the basis of its interstate, intrastate, and

international end-user telecommunications revenues. Entities providing

open video systems (OVS), cable leased access, or direct broadcast

satellite (DBS) services are not required to contribute on the basis of

revenues derived from those services. The following entities will not

be required to contribute to universal service: non-profit schools,

non-profit colleges, non-profit universities, non-profit libraries, and

non-profit health care providers; broadcasters; systems integrators

that derive less than five percent of their systems integration

revenues from the resale of telecommunications.

(c) Every telecommunications carrier that provides interstate

telecommunications services, every provider of interstate

telecommunications that offers telecommunications for a fee on a non-

common carrier basis, and payphone providers that are aggregators shall

contribute to the programs for high cost, rural and insular areas, and

low-income consumers on the basis of its interstate and international

end-user telecommunications revenues. Entities providing OVS, cable

leased access, or DBS services are not required to contribute on the

basis of revenues derived from those services. The following entities

will not be required to contribute to universal service: non-profit

schools, non-profit colleges, non-profit universities, non-profit

libraries, and non-profit health care providers; broadcasters; systems

integrators that derive less than five percent of their systems

integration revenues from the resale of telecommunications.

22. Add a new Sec. 54.708 to read as follows:

Sec. 54.708 De minimis exemption.

If a contributor's contribution to universal service in any given

year is less than $10,000, that contributor will not be required to

submit a contribution or Universal Service Worksheet for that year. If

a contributor improperly claims exemption from the contribution

requirement, it will be subject to the criminal provisions of sections

220(d) and (e) of the Act regarding willful false submissions and will

be required to pay the amounts withheld plus interest.

23. In Sec. 54.709 remove the words ``Administrator's, the Schools

and Libraries Corporation's, and the Rural Health Care Corporation's''

from paragraph (a)(2) and add, in its place, the word

``Administrator's''; revise paragraph (a)(3) to read as follows:

Sec. 54.709 Computations of required contributions to universal

service support mechanisms.

* * * * *

(3) Total projected expenses for universal service support programs

for each quarter must be approved by the Commission before they are

used to calculate the quarterly contribution factors and individual

contributions. For each quarter, the Administrator must submit its

projections of demand for the high cost and low-income support

mechanisms, the schools and libraries support mechanism, and the rural

health care support mechanism, respectively, and the basis for those

projections, to the Commission and the Common Carrier Bureau at least

sixty (60) calendar days prior to the start of that quarter. For each

quarter, the Administrator must submit its projections of

administrative expenses for the high cost and low-income programs, the

schools and libraries program and the rural health care program and the

basis for those projections to the Commission and the Common Carrier

Bureau at least sixty (60) calendar days prior to the start of that

quarter. Based on data submitted to the Administrator on the Universal

Service Worksheets, the Administrator must submit the total

contribution bases to the Common Carrier Bureau at least sixty (60)

days before the start of each quarter. The projections of demand and

administrative expenses and the contribution factors shall be announced

by the Commission in a public notice and shall be made available on the

Commission's website. The Commission reserves the right to set

projections of demand and administrative expenses at amounts that the

Commission determines will serve the public interest at any time within

the fourteen-day period following release of the Commission's public

notice. If the Commission takes no action within fourteen (14) days of

the date of release of the public notice announcing the projections of

demand and administrative expenses, the projections of demand and

administrative expenses, and contribution factors shall be deemed

approved by the Commission. Once the projections and contribution

factors are approved, the Administrator shall apply the quarterly

contribution factors to determine individual contributions.

* * * * *

Sec. 54.711 [Amended]

24. In Sec. 54.711 remove the words ``Administrator, Rural Health

Care Corporation and Schools and Libraries Corporation'' from paragraph

(b) and add, in its place, the word ``Administrator.''

25. Revise Sec. 54.715 to read as follows:

Sec. 54.715 Administrative expenses of the Administrator.

(a) The annual administrative expenses of the Administrator should

be commensurate with the administrative expenses of programs of similar

size, with the exception of the salary levels for officers and

employees of the Administrator described in paragraph (b) of this

section. The annual administrative expenses may include, but are not

limited to, salaries of officers and operations personnel, the costs of

borrowing funds, equipment costs, operating expenses, directors'

expenses, and costs associated with auditing contributors of support

recipients.

(b) All officers and employees of the Administrator may be

compensated at an annual rate of pay, including any non-regular

payments, bonuses, or other compensation, in an amount not to exceed

the rate of basic pay in effect for Level I of the Executive Schedule

under 5 U.S.C. 5312.

(c) The Administrator shall submit to the Commission projected

quarterly budgets at least sixty (60) days prior to the start of every

quarter. The Commission must approve the projected quarterly budgets

before the Administrator disburses funds under the federal universal

service support mechanisms. The administrative expenses incurred by the

Administrator in connection with the schools and libraries support

mechanism, the rural health care support mechanism, the high cost

support mechanism and the low income support mechanism shall be

deducted from the annual funding of each respective support mechanism.

The expenses deducted from the annual funding for each support

mechanism also shall include the Administrator's joint and common costs

allocated to each support mechanism pursuant to the cost allocation

manual filed by the Administrator under Sec. 64.903 of this chapter.

26. Add a new Sec. 54.717 to read as follows:

Sec. 54.717 Audits of the Administrator.

The Administrator shall obtain and pay for an annual audit

conducted by an independent auditor to examine its operations and books

of account to determine, among other things, whether the Administrator

is properly

[[Page 70577]]

administering the universal service support mechanisms to prevent

fraud, waste, and abuse:

(a) Before selecting an independent auditor, the Administrator

shall submit preliminary audit requirements, including the proposed

scope of the audit and the extent of compliance and substantive

testing, to the Common Carrier Bureau Audit Staff.

(b) The Common Carrier Bureau Audit Staff shall review the

preliminary audit requirements to determine whether they are adequate

to meet the audit objectives. The Common Carrier Bureau Audit Staff

shall prescribe modifications that shall be incorporated into the final

audit requirements.

(c) After the audit requirements have been approved by the Common

Carrier Bureau Audit Staff, the Administrator shall engage within

thirty (30) calendar days an independent auditor to conduct the annual

audit required by this paragraph. In making its selection, the

Administrator shall not engage any independent auditor who has been

involved in designing any of the accounting or reporting systems under

review in the audit.

(d) The independent auditor selected by the Administrator to

conduct the annual audit shall be instructed by the Administrator to

develop a detailed audit program based on the final audit requirements

and shall be instructed by the Administrator to submit the audit

program to the Common Carrier Bureau Audit Staff. The Common Carrier

Bureau Audit Staff shall review the audit program and make

modifications, as needed, that shall be incorporated into the final

audit program. During the course of the audit, the Common Carrier

Bureau Audit Staff may direct the Administrator to direct the

independent auditor to take any actions necessary to ensure compliance

with the audit requirements.

(e) During the course of the audit, the Administrator shall

instruct the independent auditor to:

(1) Inform the Common Carrier Bureau Audit Staff of any revisions

to the final audit program or to the scope of the audit;

(2) Notify the Common Carrier Bureau Audit Staff of any meetings

with the Administrator in which audit findings are discussed; and

(3) Submit to the Chief of the Common Carrier Bureau any accounting

or rule interpretations necessary to complete the audit.

(f) Within sixty (60) calendar days after the end of the audit

period, but prior to discussing the audit findings with the

Administrator, the independent auditor shall be instructed by the

Administrator to submit a draft of the audit report to the Common

Carrier Bureau Audit Staff.

(g) The Common Carrier Bureau Audit Staff shall review the audit

findings and audit workpapers and offer its recommendations concerning

the conduct of the audit or the audit findings to the independent

auditor. Exceptions of the Common Carrier Bureau Audit Staff to the

findings and conclusions of the independent auditor that remain

unresolved shall be included in the final audit report.

(h) Within fifteen (15) calendar days after receiving the Common

Carrier Bureau Audit Staff's recommendations and making any revisions

to the audit report, the Administrator shall instruct the independent

auditor to submit the audit report to the Administrator for its

response to the audit findings. At this time the auditor also must send

copies of its audit findings to the Common Carrier Bureau Audit Staff.

The Administrator shall provide the independent auditor time to perform

additional audit work recommended by the Common Carrier Bureau Audit

Staff.

(i) Within thirty (30) calendar days after receiving the audit

report, the Administrator shall respond to the audit findings and send

copies of its response to the Common Carrier Bureau Audit Staff. The

Administrator shall instruct the independent auditor that any reply

that the independent auditor wishes to make to the Administrator's

responses shall be sent to the Common Carrier Bureau Audit Staff as

well as the Administrator. The Administrator's response and the

independent auditor's replies shall be included in the final audit

report;

(j) Within ten (10) calendar days after receiving the response of

the Administrator, the independent auditor shall file with the

Commission the final audit report.

(k) Based on the final audit report, the Chief of the Common

Carrier Bureau may take any action necessary to ensure that the

universal service support mechanisms operate in a manner consistent

with the requirements of this Part, as well as such other action as is

deemed necessary and in the public interest.

27. Add a subpart I to part 54 of title 47 of the Code of Federal

Regulations as follows:

Subpart I--Review of Decisions Issued by the Administrator

54.719 Parties permitted to seek review of Administrator decisions.

54.720 Filing deadlines.

54.721 General filing requirements.

54.722 Review by the Common Carrier Bureau or the Commission.

54.723 Standard of review.

54.724 Time periods for Commission approval of Administrator

decisions.

54.725 Universal service disbursement during pendency of a request

for review of an Administrator decision.

28. Add a new Sec. 54.719 to read as follows:

Sec. 54.719 Parties permitted to seek review of Administrator

decisions.

(a) Any person aggrieved by an action taken by a division of the

Administrator, as defined in Sec. 54.701(g), may seek review from the

appropriate Committee of the Board, as defined in Sec. 54.705.

(b) Any person aggrieved by an action taken by the Administrator

pertaining to a billing, collection or disbursement matter that falls

outside the jurisdiction of the Committees of the Board may seek review

from the Board of Directors of the Administrator, as defined in

Sec. 54.703.

(c) Any person aggrieved by an action taken by a division of the

Administrator, as defined in Sec. 54.701(g), a Committee of the Board

of the Administrator, as defined in Sec. 54.705, or the Board of

Directors of the Administrator, as defined in Sec. 54.703, may seek

review from the Federal Communications Commission, as set forth in

Sec. 54.722.

29. Add a new Sec. 54.720 to read as follows:

Sec. 54.720 Filing deadlines.

(a) An affected party requesting review of an Administrator

decision by the Commission pursuant to Sec. 54.719(c), shall file such

request within thirty (30) days of the issuance of the decision by a

division or Committee of the Board of the Administrator.

(b) An affected party requesting review of a division decision by a

Committee of the Board pursuant to Sec. 54.719(a), shall file such

request within thirty (30) days of issuance of the decision by the

division.

(c) An affected party requesting review by the Board of Directors

pursuant to Sec. 54.719(b) regarding a billing, collection, or

disbursement matter that falls outside the jurisdiction of the

Committees of the Board shall file such request within thirty (30) days

of issuance of the Administrator's decision.

(d) The filing of a request for review with a Committee of the

Board under Sec. 54.719(a) or with the full Board under Sec. 54.703,

shall toll the time period for seeking review from the Federal

Communications Commission. Where the time for filing an appeal has been

tolled, the party that filed the request for review from a Committee of

the Board

[[Page 70578]]

or the full Board shall have thirty (30) days from the date the

Committee or the Board issues a decision to file an appeal with the

Commission.

(e) Parties shall adhere to the time periods for filing oppositions

and replies set forth in 47 CFR 1.45.

30. Add a new Sec. 54.721 to read as follows:

Sec. 54.721 General filing requirements.

(a) Except as otherwise provided herein, a request for review of an

Administrator decision by the Federal Communications Commission shall

be filed with the Federal Communications Commission's Office of the

Secretary in accordance with the general requirements set forth in part

1 of this chapter. The request for review shall be captioned ``In the

matter of: Request for Review by (name of party seeking review) of

Decision of Universal Service Administrator'' and shall reference FCC

Docket Nos. 97-21 and 96-45.

(b) A request for review pursuant to Sec. 54.719(a) through (c)

shall contain: (1) a statement setting forth the party's interest in

the matter presented for review; (2) a full statement of relevant,

material facts with supporting affidavits and documentation; (3) the

question presented for review, with reference, where appropriate, to

the relevant Federal Communications Commission rule, Commission order,

or statutory provision; (4) a statement of the relief sought and the

relevant statutory or regulatory provision pursuant to which such

relief is sought.

(c) A copy of a request for review that is submitted to the Federal

Communications Commission shall be served on the Administrator

consistent with the requirement for service of documents set forth in

Sec. 1.47 of this chapter.

(d) If a request for review filed pursuant to Sec. 54.720(a)

through (c) alleges prohibitive conduct on the part of a third party,

such request for review shall be served on the third party consistent

with the requirement for service of documents set forth in Sec. 1.47 of

this chapter. The third party may file a response to the request for

review. Any response filed by the third party shall adhere to the time

period for filing replies set forth in Sec. 1.45 of this chapter and

the requirement for service of documents set forth in Sec. 1.47 of this

chapter.

31. Add a new Sec. 54.722 to read as follows:

Sec. 54.722 Review by the Common Carrier Bureau or the Commission.

(a) Requests for review of Administrator decisions that are

submitted to the Federal Communications Commission shall be considered

and acted upon by the Common Carrier; provided, however, that requests

for review that raise novel questions of fact, law or policy shall be

considered by the full Commission.

(b) An affected party may seek review of a decision issued under

delegated authority by the Common Carrier Bureau pursuant to the rules

set forth in part 1 of this chapter.

32. Add a new Sec. 54.723 to read as follows:

Sec. 54.723 Standard of review.

(a) The Common Carrier Bureau shall conduct de novo review of

requests for review of decisions issued by the Administrator.

(b) The Federal Communications Commission shall conduct de novo

review of requests for review of decisions by the Administrator that

involve novel questions of fact, law, or policy; provided, however,

that the Commission shall not conduct de novo review of decisions

issued by the Common Carrier Bureau under delegated authority.

33. Add a new Sec. 54.724 to read as follows:

Sec. 54.724 Time periods for Commission approval of Administrator

decisions.

(a) If the Common Carrier Bureau does not take action within ninety

(90) days upon appeals that are properly before it, a decision issued

by the Administrator shall be deemed approved; provided, however, that

within the 90-day period, the Common Carrier Bureau may extend the time

period for taking action on a request for review of an Administrator

decision.

(b) The Commission shall issue a written decision in response to a

request for review of an Administrator decision that involves novel

questions of fact, law or policy within ninety (90) days; provided,

however, that the Commission may extend the time period for taking

action on the request for review.

34. Add a new Sec. 74.725 to read as follows.

Sec. 54.725 Universal service disbursements during pendency of a

request for review of an Administrator decision.

(a) When a party has sought review of an Administrator decision

under Sec. 54.719(a) through (c) in connection with the schools and

libraries support mechanism or the rural health care support mechanism,

the Administrator shall not reimburse a service provider for the

provision of discounted services until a final decision has been issued

either by the Administrator or by the Federal Communications

Commission.

(b) When a party has sought review of an Administrator decision

under Sec. 54.719(a) through (c) in connection with the high cost and

low income support mechanisms, the Administrator shall not disburse

support to a service provider until a final decision has been issued

either by the Administrator or by the Federal Communications

Commission.

PART 69--ACCESS CHARGES

35. The authority citation for part 69 continues to read as

follows:

Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254,

403.

Sec. 69.600 [Removed]

36. Remove Sec. 69.600.

Sec. 69.603 [Amended]

37. In Sec. 69.603 remove paragraphs (c), (d), and (e).

Sec. Sec. 69.613 through 69.622 [Removed]

38. Remove Secs. 69.613 through 69.622.

[FR Doc. 98-33549 Filed 12-18-98; 8:45 am]

BILLING CODE 6712-01-P