Federal-State Joint Board on Universal Service

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 96-45; FCC 98-346]

Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, we grant the Rural Health Care Corporation's

request to reconsider the Commission's decision regarding the funding

year for the rural health care universal service support mechanism. We

conclude that the public interest will be served by changing the

funding year for the rural health care universal service support

mechanism from a calendar year cycle (January 1-December 31) to a

fiscal year cycle (July 1-June 30), and extending the first funding

year by six months to June 30, 1999. Moreover, we conclude that the

transition to a fiscal year cycle should be implemented immediately.

The intended effect is to have the

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applications submitted during the initial 75-day filing window and

approved for funding will be funded through June 30, 1999, within the

funding limitations adopted.

DATES: Effective January 15, 1999.

FOR FURTHER INFORMATION CONTACT: Jack Zinman, Attorney, Common Carrier

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

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

document released on December 31, 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 Ninth Order on Reconsideration in CC Docket No. 96-45

I. Discussion

1. We find that the public interest will be served by changing the

funding year for the rural health care universal service support

mechanism from a calendar year cycle (January 1-December 31) to a

fiscal year cycle that will run from July 1-June 30, and extending the

first funding period by six months to June 30, 1999. We conclude that

the transition to a fiscal year should be implemented immediately. In

order to accommodate the transition to a fiscal year funding cycle, the

first funding period will be the 18-month period from January 1, 1998

through June 30, 1999. The second funding period will begin on July 1,

1999. Applications that were submitted during the initial 75-day filing

window and approved for funding by the rural health care support

mechanism will be funded through June 30, 1999, to the extent permitted

by funding constraints. We direct the Rural Health Care Corporation

(RHCC), in consultation with the Universal Service Administrative

Company (USAC) and the Common Carrier Bureau, to establish a filing

window for the next fiscal year, to open on March 1, 1999. Parties

seeking support for the second funding period may begin to file

applications on March 1, 1999. We also conclude that RHCC should

determine the length of that window, and resolve other administrative

matters necessary to implement a filing window in consultation with the

Common Carrier Bureau. Upon consummation of the merger, USAC shall

assume RHCC's role in implementing these directives.

2. We have decided to extend the initial funding period and

implement a fiscal year funding cycle for rural health care, and to

transition to this approach immediately, for several reasons. We agree

with RHCC that applicants will benefit from the six-month extension.

Although RHCC has received more than 2,500 applications for support,

very few rural health care providers (RHCPs) have completed the

application process. The transition to the fiscal year funding cycle

adopted herein will afford applicants an opportunity to conclude

negotiations with telecommunications service providers, and take

advantage of the resources that they have already invested in the

application process.

3. We also agree with RHCC that granting the extension will provide

an opportunity to implement changes that may be identified in the near

future to further enhance the operation of the rural health care

universal service support mechanism. Specifically, we recently directed

USAC to evaluate anticipated demand for 1999, and review the operations

of the rural health care support mechanism to improve the opportunities

for eligible rural health care providers to take advantage of the

support mechanism. We further directed that USAC submit the results of

such evaluation to the Commission by March 1, 1999. A six-month

extension of the initial funding period will provide RHCC, USAC, and

the Commission with additional time to implement any such changes prior

to the commencement of the second funding period.

4. In addition, our decision to adopt a fiscal year funding period

will synchronize the rural health care universal service support

mechanism with the budgetary and planning cycle of the schools and

libraries universal service support mechanism. This coordination of

support mechanisms will simplify USAC's tasks of tracking collections,

processing accumulated credits, and complying with financial reporting

requirements. USAC also believes that consistency of year end close of

books will provide the additional benefit of minimizing the frequency

of disruptions therefrom.

5. Moreover, we find that, as noted in the Fifth Order on

Reconsideration, 63 FR 143088 (August 12, 1998), using a fiscal year

funding cycle will ease the administrative burden on carriers by

aligning universal service contribution levels with the local exchange

carrier annual access tariff filing schedule. Under our rules, local

exchange carriers file their annual tariffs to be effective July 1 of

each year. One piece of information these companies require in order to

file their tariffs is the universal service contribution factors.

6. Additionally, we disagree with the U.S. Department of Health and

Human Services (HHS) concern that granting RHCC's request for a six-

month extension will result in less money being available for the

support mechanism. It is anticipated that the rural health care support

mechanism will have a balance of approximately $85.5 million at the end

of the fourth quarter of 1998. As discussed in the Contribution Factors

Public Notice, we directed that half of this amount be used to reduce

the amount of contributions collected during the first quarter of 1999.

We further directed that once USAC has completed its evaluation of

rural health care funding needs, the amount remaining in the account,

net of expected 1999 funding requirements, be used to reduce subsequent

contribution factors. In light of current estimates of demand for

support, as discussed in the Contribution Factors Public Notice, we

conclude that there is sufficient funding for the rural health care

support mechanism. HHS also believes that there may be confusion as to

whether additional providers may apply for support during the six-month

extension period, and if they are not permitted to do so, then the

extension may be perceived as a delay. We are moving the start date for

the second funding period, which should ameliorate the concerns of

additional providers who wish to apply for support. Moreover, we reject

the alternative ``grandfather'' approach suggested by HHS. As

previously explained, HHS suggests considering any pending initial

funding period applications in the second funding period, thus

eliminating the need for applicants to resubmit those applications.

Under such an approach, the rural health care mechanism's second

funding period would begin on January 1, 1999. We would therefore be

unable to convert the mechanism to a fiscal year cycle, and we would

forgo the administrative benefits of such a conversion. Thus, we

continue to believe that granting RHCC's request is in the public

interest.

7. To accomplish the changes requested by RHCC, we conclude that,

for applications filed within the initial 75-day filing window, the

Administrator shall make funding commitments effective for services

provided no earlier than January 1, 1998. These services will be funded

at the approved monthly level through June 30, 1999. We conclude that

this approach is reasonable because telecommunications services and

Internet access are generally provided at regular, monthly intervals

and are billed on a monthly, recurring basis.

8. The transition from a calendar year to a fiscal year also

requires that we amend our rules concerning the acceptance of funding

requests. The

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universal service funding period for RHCPs presently runs from January

1 to December 31. Section 54.623(c) of the Commission's rules permits

RHCPs to begin to apply for support on July 1 prior to each funding

period. The 1998 funding period, which by this Order we extend to June

30, 1999, is the first funding period during which the universal

service mechanism designed to benefit RHCPs is in place. The RHCC, the

entity currently charged with administering the application process,

did not begin accepting applications from health care providers for the

first funding period until May 1, 1998, largely due to the challenges

of implementing a new universal service support mechanism. As a result

of this delay, RHCC was not able to accept applications for the second

funding period beginning on July 1, 1998, and to date, has not opened a

filing window for the second funding period nor received applications

for support for the second funding period. Thus, we need to establish a

new start date for the application process for the second funding

period.

9. We conclude that a start date of March 1, 1999, for the

application process for the second funding period will serve the public

interest. Moving the start date to March 1, 1999, will give applicants

sufficient time to complete their applications for the first funding

period before they are required to submit applications for the second

funding period. In addition, moving the start date to March 1, 1999,

will allow applicants an opportunity to assess the sufficiency of the

supported services they receive in the first funding period before they

are asked to declare which services they will require in the second

funding period. Accordingly, we find that the public interest will be

served by amending section 54.623(c) of the Commission's rules and

moving the commencement of the application process for the second

funding period from July 1, 1998, to March 1, 1999.

10. The transition to a fiscal year funding cycle adopted herein

further requires that we reconsider on our own motion the limitation on

the exemption from competitive bidding for voluntary extensions of

contracts. Our rules currently provide that voluntary extensions of

existing contracts are not exempt from the competitive bidding rules.

To accomplish an orderly transition to the fiscal year funding cycle,

however, we conclude that we must allow existing contracts that have a

termination date between December 31, 1998 and June 30, 1999 to be

voluntarily extended to a date no later than June 30, 1999. Although

voluntary extensions of contracts generally are not exempt from the

competitive bidding requirement, we adopt this limited exception for

voluntary extensions of contracts up to June 30, 1999. To hold

otherwise would result in RHCPs either having to participate in

competitive bidding for only a six-month service period, or not being

eligible for support for that six-month period. We conclude that either

result would be both administratively and financially unworkable for

RHCPs. Thus, we find that the public interest will be served by

amending the exemption from the competitive bidding requirements found

in section 54.603 of the commission's rules, to allow RHCPs that filed

applications within the 75-day initial filing window to extend

voluntarily, to a date no later than June 30, 1999, existing contracts

that otherwise would terminate between December 31, 1998 and June 30,

1999.

11. We conclude that the amendments to our rules adopted herein

shall be effective upon publication in the Federal Register. In this

Order, we adopt amendments that change the funding period for the rural

health care support mechanism from a calendar year cycle (January 1-

December 31) to a fiscal year cycle (July 1-June 30), and extend the

first funding year for the rural health care support mechanism by six

months to June 30, 1999. Thus, these amendments must take effect before

the rural health care support mechanism's first funding year expires on

December 31, 1998. Additionally, compliance with these amendments

requires preparation only by USAC and RHCC. These entities will have

actual notice of their obligations when the Commission adopts this

Order, and both entities will be able to comply with these amendments

in a short amount of time. Accordingly, pursuant to the Administrative

Procedure Act, we find good cause to depart from the general

requirement that final rules take effect not less than thirty days

after their publication in the Federal Register.

II. Supplemental Final Regulatory Flexibility Analysis

12. In compliance with the Regulatory Flexibility Act (RFA), this

Supplemental Final Regulatory Flexibility Analysis (SFRFA) supplements

the Final Regulatory Flexibility Analysis (FRFA) included in the

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

extent that changes to that Order adopted herein on reconsideration

require changes in the conclusions reached in the FRFA. As required by

section 603 RFA, 5 U.S.C. 603, the FRFA was preceded by an Initial

Regulatory Flexibility Analysis (IRFA) incorporated in the Notice of

Proposed Rulemaking and Order Establishing the Joint Board (NPRM), and

an IRFA, prepared in connection with the Recommended Decision, which

sought written public comment on the proposals in the NPRM and the

Recommended Decision.

A. Need for and Objectives of this Order

13. The Commission is required by section 254 of the Act to

promulgate rules to implement promptly the universal service provisions

of section 254. On May 8, 1997, the Commission adopted rules whose

principal goal is to reform our system of universal service support

mechanisms so that universal service is preserved and advanced as

markets move toward competition. In this Order, we reconsider one

aspect of those rules. To give RHCPs an opportunity to complete the

application process during the first funding period, we grant the

request to reconsider the funding cycle for RHCPs. We conclude that the

public interest will be served by changing the funding year for the

rural health care universal service support mechanism from a calendar

year cycle to a fiscal year cycle running from July 1 to June 30, and

extending the first funding year by six months to June 30, 1999.

Moreover, this change to a fiscal year funding cycle will synchronize

the budgetary and planning cycles of the rural health care and schools

and libraries universal service support mechanisms, and will align

universal service contribution levels with projected reductions in

access charges.

B. Summary and Analysis of the Significant Issues Raised by Public

Comments in Response to the FRFA

14. Nine entities filed comments in response to the Public Notice

released on December 8, 1998. The overwhelming majority support RHCC's

request to extend its initial funding year to June 30, 1999. One

commenter, HHS, expressed concerns about the amount of funding

available and the ability of additional providers to apply for support

if the rural health care mechanism's funding year is extended through

June 30, 1999. As previously discussed and in the Contribution Factors

Public Notice, there is sufficient funding for the support mechanism,

and the Commission has taken steps to ensure that additional providers

will be able to apply for support. The Commission also rejected HHS's

suggestion of a ``grandfather'' approach because it would preclude

converting the rural health care support mechanism to a fiscal year

cycle and would prevent

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USAC and RHCPs from realizing the administrative efficiencies

associated with a fiscal year cycle.

C. Description and Estimates of the Number of Small Entities to Which

the Rules Adopted in This Order Will Apply

15. In the FRFA at paragraphs 890-925 of the Universal Service

Order, we described and estimated the number of small entities that

would be affected by the new universal service rules. The rules adopted

herein may apply to the same entities affected by the universal service

rules. We therefore incorporate by reference paragraphs 890-925 of the

Universal Service Order.

D. Summary Analysis of the Projected Reporting, Recordkeeping, and

Other Compliance Requirements and Significant Alternatives

16. In the FRFA to the Universal Service Order, we described the

projected reporting, recordkeeping, and other compliance requirements

and significant alternatives associated with the Schools and Libraries

section, the Rural Health Care Provider section, and the Administration

section of the Universal Service Order. Because the rules adopted

herein may only affect those requirements in a marginal way, we

incorporate by reference paragraphs 956-60, 968-71, and 980 of the

Universal Service Order, which describe those requirements and provide

the following analysis of the new requirements adopted herein.

17. Under the rules adopted herein, we revise the funding year for

the rural health care support mechanism from a calendar year cycle

(January 1-December 31) to a fiscal year cycle (July 1-June 30), and

extend the first funding year by six months to June 30, 1999. This

revision will benefit RHCPs in three ways: (1) it will give them an

opportunity to complete the application process for the initial funding

cycle; (2) it will synchronize the rural health care support mechanism

with the budgetary and planning cycles of schools and libraries support

mechanism, thereby resulting in administrative efficiencies for USAC;

and (3) it will align universal service contribution levels with

projected reductions in access charges. These changes will not have a

significant impact on the reporting, recordkeeping, and other

compliance requirements for the rural health care support mechanism.

E. Steps Taken To Minimize the Significant Economic Impact on a

Substantial Number of Small Entities Consistent with Stated Objectives

18. In the FRFA to the Universal Service Order, we described the

steps taken to minimize the significant economic impact on a

substantial number of small entities consistent with stated objectives

associated with the Schools and Libraries section, the Rural Health

Care Provider section, and the Administration section of the Universal

Service Order. Because the rules adopted herein may only affect those

requirements in a marginal way, we incorporate by reference paragraphs

961-67, 972-76, and 981-82 of the Universal Service Order, which

describe those requirements and provide the following analysis of the

new requirements adopted herein.

19. As previously described, our decision to change to a fiscal

year funding cycle, and extend the first funding year by six months,

will benefit RHCPs, as well as their chosen service providers, who may

be small entities, by ensuring that they have an opportunity to

complete the application process, and recoup their investment therein.

We also find that this approach strikes the best balance between

fulfilling the statutory mandate to enhance access to

telecommunications services for RHCPs, and fulfilling the statutory

principle of providing quality services at ``just, reasonable, and

affordable rates,'' without imposing unnecessary burdens on RHCPs or

service providers, including small entities.

III. Ordering Clauses

20. 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; 47 CFR 1.108, the Ninth Order

on Reconsideration is adopted, and 47 CFR Part 54, are amended as set

forth in the rule changes.

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

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

Order on Reconsideration, including the Supplemental Final Regulatory

Flexibility Analysis, to the Chief Counsel for Advocacy of the Small

Business Administration.

List of Subjects in 47 CFR Part 54

Healthcare providers, Libraries, Reporting and recordkeeping

requirements, Schools, Telecommunications, Telephone.

Federal Communications Commission.

Magalie Roman Salas,

Secretary.

Rule Changes

Part 54 of Title 47 of the Code of Federal Regulations is amended

as follows:

PART 54--UNIVERSAL SERVICE

1. The authority 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. Amend Sec. 54.604 by revising paragraph (d) to read as follows:

Sec. 54.604 Existing contracts.

* * * * *

(d) The exemption from the competitive bid requirements set forth

in paragraph (a) shall not apply to voluntary extensions of existing

contracts, with the exception that an eligible health care provider as

defined under Sec. 54.601 or consortium that includes an eligible

health care provider, that filed an application within the initial 75-

day filing window (May 1, 1998-July 14, 1998) may voluntarily extend,

to a date no later than June 30, 1999, an existing contract that

otherwise would terminate between December 31, 1998 and June 30, 1999.

3. Amend Sec. 54.623 by revising paragraphs (b) and (c) to read as

follows:

Sec. 54.623 Cap.

* * * * *

(b) Funding year. A funding year for purposes of the health care

providers cap shall be the period July 1 through June 30. For the

initiation of the mechanism only, the eighteen month period from

January 1, 1998 to June 30, 1999 shall be considered a funding year.

Eligible health care providers filing applications within the initial

75-day filing window shall receive funding for requested services

through June 30, 1999.

(c) Requests. Funds shall be available as follows:

(1) Generally, funds shall be available to eligible health care

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

beginning on the first of January prior to each funding year.

(2) For the initial funding year, the Administrator shall implement

an initial filing period that treats all health care providers filing

within that period as if they 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.

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(3) For the second funding year, which will begin on July 1, 1999,

the Administrator shall implement a filing period that treats all

health care providers filing within that period as if they 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.

(4) The Administrator may implement such additional filing periods

as it deems necessary.

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[FR Doc. 99-972 Filed 1-14-99; 8:45 am]

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