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Version 3.9 Updated: January 20, 1998 (note - this was written 10 years ago and has not been updated - The Universal Service Admin Corp has comprehensive information on Erate)
Note that Schools and Libraries that receive Erate funding must comply with CIPA.
On February 8, 1996, the world changed. President Clinton signed the most comprehensive reform of the telecommunications legal landscape since 1934. The Telecommunications Act marked a new era of promised deregulation, competition, increased choices for consumers, and reduces costs. It also marked the first true statutory enactment of universal service and broadly expanded its scope to include more telecommunication services and all telecommunication carriers. The new universal service program includes the provision of discounted telecommunications services to schools, libraries and rural health care provides. The Act specifically anticipates that schools and libraries will use the fund to acquire Internet access.
On May 8, 1997, the Federal Communications Commission released its Universal Service Order, implementing the universal service provisions of Telecommunications Act of 1997.12 This Order created the $2.25 billion school and library fund and a $400 million fund for rural health care providers. It also set forth how schools, libraries, and rural health care providers go about applying for the funding and acquiring telecommunication services.
In order to be eligible to participate in the universal service program, schools and libraries must meet the following requirements. First, the State must have implemented the FCC's universal service fund program.12.5 Most states have either implemented or are in the process of implementing the program. In order to determine the status of your state, contact your state public utility commission.13
Schools and Libraries
Schools must (1) meet the statutory definition of an elementary or secondary school found in the Elementary and Secondary Education Act of 1965, (2) not operate as a for-profit business, (3) have an endowment under $50 million, and (4) use service for "educational purposes."14 This generally means that all public schools are eligible. Non-public schools that meet these criteria are also eligible.
Libraries must (1) be eligible for assistance from a state library administrative agency under the Library Services and Technology Act (LSTA), and (2) not operate as a for-profit business. Eligible libraries include public elementary or secondary school libraries, academic libraries, research libraries, and private libraries subject to state determination. Libraries must either be associated with an elementary or secondary school, or independent of any institution of higher education. Libraries which are a part of an eligible school will generally participate in the program as a part of that school.15
Schools and libraries can (and are encouraged to) aggregate their demand by forming consortia with both eligible and ineligible entities. By pooling resources and demand, a consortium may be able to formulate more attactive arrangements. However, the benefits received from The Fund must be provided to the eligible entities in accordance with their level of eligibility.
|Must meet the statutory definition of an elementary or secondary school found in the Elementary and Secondary Education Act of 1965||Must be eligible for assistance from a state library administrative agency under the Library Services and Technology Act|
|Must not operate as a for-profit business||Must not operate as a for-profit business|
|Must not have an endowment exceeding $50 million.|
|Services must be used for "educational purposes."|
Internet Service Providers
In the past, only telephone carriers had to pay for and only telephone carriers received the financial benefit of universal service. In the new world, "[a]ll telecommunications carriers that provide interstate telecommunications services are required to contribute to universal service support mechanisms."16 As a corollary, generally, only telecommunications carriers are eligible to take out of the fund.
But Internet Service Providers are not telecommunications carriers. From a regulatory history dating back to 1970, the FCC determined that Internet Service Providers are "Enhanced Service Providers." Since they are Enhanced Service Providers and not common carriers, they are not obligated to pay into the universal service fund. This also generally means that they are not eligible to receive support from the Universal Service Fund (see footnote 11).
There is, of course, an exception to the general rule. Section 254(h)(2)(A) of the Telecommunications Act directs the FCC to "enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms . . . and libraries." The FCC interpreted information services to include Internet access. Section 254(h)(2) also called for the Universal Service program to be competitively neutral; the subsidies should not favor one segment of the industry at the expense of the other. If the School and Library Fund only supported Internet access from telephone carriers, then the telephone carriers would have a significant advantage over independent ISPs in a competitive market. In order to ensure that the universal service fund is competitively neutral, the FCC sought to make all ISPs eligible.
Nevertheless, the FCC could not just decide to pay subsidies to non-telecommunications carriers which do not pay into the Universal Service Fund. In order to get around the general rule that only telecommunications carriers are eligible to receive from the fund, the FCC concluded that "the language of Section 254(h)(2) grants the Commission broad authority to enhance access to advanced telecommunications and information services, constrained only by the concepts of competitive neutrality, technical feasibility, and economical reasonableness."16.5 Unlike the general rule, Section 254(h)(2) does not limit the school and library fund to support of only telecommunications carriers. Since support of independent ISPs enhances access to information services and is competitively neutral, technically feasible, and economically reasonable, then, in the opinion of the FCC, it is permissible under Section 254(h)(2). As a result, all ISPs, whether associated with a telecommunications carrier or not, are eligible to receive support from the universal service fund.17
NEW: Another general rule is that in order for a telecommunications carrier to receive support from the universal service fund, it must be certified. Again, there is an exception. On the federal level, there is no requirement that ISPs or vendors who participate in the School & Library Fund be certified (you should check for any requirements on the state level).17.5
The FCC's Universal Service Order set forth the discounts for which schools and libraries are eligible in its discount matrix table.18 Two factors are used to determine eligibility. First, the universal service program will consider the percentage of students which are eligible to participate in the national school lunch program (for those schools which do not participate in the school lunch program, there is an alternative method of measuring poverty).18.5 Libraries will determine their eligibility based on the level of participation of schools in the national school lunch program in the area where the library is situated. Second, the program will consider whether the school or library is in an urban or rural environment. The Commission decided that "rural" shall be defined in accordance with the Office of Management and Budget's designation of metropolitan and non-metropolitan counties.19 Using these two factors, the discount matrix reveals the discount available for the school or library, which ranges between twenty and ninety percent. According to the discount matrix, every eligible school or library is qualified for at least a twenty percent discount.
|% Students Eligible for
National School Lunch Program
|Estimated number of
schools in category
The funds from the School & Library Universal Service Program will be distributed on a first-come, first-serve basis. Since there is $2.25 billion in the Fund, the FCC believes that there is little chance that the Fund will be exhausted. On the other hand, there are rumors of states planning to put the Fund to good use, setting up city wide or state wide networks. The FCC has set up the following procedures in the event that the Fund begins to be depleted.
When there is only $250 million dollars left in the Fund (10 percent of the Fund), a system of priorities will be initiated. The Fund Administrator will give notice that the $250 million trigger has been reached. For the next 30 days (or until the end of the year, whichever is shorter), the most disadvantaged schools and libraries will receive priority for funding commitments. If sufficient funds remain, institutions in other brackets will also receive funding commitments. This system of priority will continue until the Fund is exhausted.19.5
When the Fund first goes online, there will be a one-time, 75 day application window.19.7 During this time, all applications will receive the exact same priority. Instead of first-come, first-serve during this window, it will be as if they were filed simultaneously. Since there is this 75-day window, the School & Library Corporation encourages entities not to rush but to take the time necessary to correctly prepare and file applications.
The Universal Service Fund can be used by the school or library to acquire any telecommunication service (i.e., telephones, beepers, cellular phones). The FCC created a flexible fund so that schools and libraries can model technology plans according to their unique needs. It also is anticipated that the Internet is one of the services schools and libraries will seek to acquire.
Recognizing that the expense of Internet access involves more than the mere cost of the service, the FCC determined that The Fund could be used to acquire all equipment that "is necessary to transport information all the way to individual classrooms."20 This includes wiring, routers, hubs, network file servers (including the necessary software), installation and maintenance of internal connections, and wireless local area networks (LANs).21 Universal service funds cannot be used for
equipment such as computers (with the exception of network file servers) and other hardware, software (with the exception of the software required for the operation of network file servers), fax machines, modems, teacher training, upgrades to the electrical system, and asbestos removal.22
Also not eligible for discounts are subscriptions for content, "training, non-network software, voice mail or information services in general, electrical connections, and security."23
Funding for the uncovered elements may be obtained from alternative sources such as the Department of Education's Technology Grant Programs24, from corporations who are now eligible for substantial tax benefits for donated computers, or non-profit initiatives such as Net-Day. See For Further Information Equipment for Schools.
Another restriction is that schools and libraries are not permitted to resell the services acquired through universal service funds.
Network File Servers
Non Network Software
Upgrades to electrical system
The Schools and Libraries Corporation has produced a detail list (PDF) of eligible and ineligible network elements. See also Merit.net's compilation of eligible and ineligible elements.
Funding from the Schools and Libraries program starts January 1, 1998.25 Schools, libraries, and service providers should complete the application process as soon as possible.
TECHNOLOGY INVENTORY AND PLAN: The first step of the process is for schools and libraries to prepare technology inventories and plans for future need and use. Schools and libraries are required to make a full inventory of all equipment which they already have in their buildings and systems. They must then articulate exactly how new equipment will be used, what purpose it will serve, and who it is intended to benefit. 25.5
STATE APPROVAL: When a school, library, or consortium has their plan completed, it must be approved by the appropriate authority in their state. This achieves two goals. First, the state review is intended to ensure that the technology plans are not frivolous and wasteful. Second, it ensures that there is funding committed in the state's budget to cover its share of cost of the technology plan. The review of technology plans will be the responsibility of different entities in different states; the state also has the authority to delegate this responsibility. ISPs should consult the state's public utility commission or department of education to determine who the responsible entity is.
SUBMISSION OF APPLICATION TO USF ADMINISTRATOR: Using FCC Form 470, schools and libraries prepare a summary of their telecommunications plans and needs.26 Schools and libraries can submit an FCC Form 470 for their entire technology plan or any part thereof. Schools and libraries can choose to submit one FCC Form 470 for telephone service and another for Internet service, attracting separate bids from different types of providers. Upon completion, FCC Form 470 is submitted to the School and Library Corporation for approval, posting on the School & Library Corporation web page, and competitive bidding.
APPROVAL: The Administrator will review the applications for approval. The Administrator's review will consist of an examination of the applications for technical errors only, ensuring that all procedures have been properly followed. The administrator will not be making a subjective determination of the appropriateness of the technology plan. COMPETITIVE BIDDING: Completed applications will be posted to the Administrator's web page for four weeks for the purpose of receiving competitive bids.27 Service providers bidding for plans must submit bids that constitute the "lowest corresponding price" for the service bid on.28
SELECTION OF PROPOSALS: At the end of the bidding cycle, the schools or libraries select the most cost effective plan (it need not be the cheapest; it should be the proposal which is the most appropriate for the technology plan).
COMMITMENT OF FUNDS: Notice is given to the Fund Administrator by the school or library of the selection of services and the formation of contracts using FCC Form 471. It is the FCC Form 471 which requests the Fund Administrator to commit funds to this particular contract or project. It is also the FCC Form 471 which determines the priority by which schools and libraries will receive funds. See Section Above: What Happens If The Universal Service Fund Runs Out of Money?
Pre-existing Contracts: An FCC Form 470 and FCC Form 471 must be submitted for all contracts. For pre-existing contracts, the FCC Form 471 can be submitted simultaneously with the FCC Form 470. For new contracts, the FCC Form 471 cannot be submitted until after the competitive bidding period is closed.
INITIATION OF SERVICE: Once approval of the application is received from the Fund Administrator, service can begin.
RECEIPT OF FUNDING: When service is initiated, the school or library must give notice to the Fund Administrative to approve reimbursements using FCC Form 486 (FCC Form 486 is not yet available). Schools and libraries pay their share of the telecommunications expense directly to the service provider.29 The service provider in turn must seek reimbursement directly from the Fund Administrator.30 The FCC has indicated that reimbursement should be provided no later than 40 days after request for reimbursement.
ANNUAL RENEWAL: Finally, schools and libraries must annually renew their applications with the Fund Administrator.31 The USF operates on the calendar year.
Pre-existing contracts may be covered by the School and Library Fund without going through the competitive bidding process. There are two types of contracts which can be covered with two different scopes of coverage. In both of these situations, the School and Library fund will only cover eligible services and internal network connections which are provided after January 1, 1998.
Contracts signed on or before July 10, 1997 (new date) will be considered an existing contract and therefore exempt from the competitive bidding requirement for the life of the contract.
Contracts signed after July 10, 1997 but before the date on which the Schools and Libraries Corporation website is fully operational and accepting forms 470s will be eligible for support and exempt from the competitive bidding requirement for services provided between January 1 and December 31, 1998. Any services provided after December 31, 1998 will not be covered. In order for these schools and libraries to continue to receive School and Library funding, they will have to submit their technology plans for competitive bidding in 1998.31.5
"Public and non-profit rural health care providers are eligible for support for any telecommunications services employing transmission speeds of less than or equal to 1.54 Mbps. 1.54 Mbps is equivalent to a T-1, so, for example, an eligible health care provider could choose a T-1, a quarter T-1, an ISDN line, or a satellite connection at supported rates. The 1996 Act requires that universal service funds be available on a technology neutral and telecommunications provider neutral basis.
"In addition, any public or non-profit health care provider that does not have toll free access to an Internet service provider is eligible for limited support for toll charges to reach the nearest Internet service provider. Universal service support per month will be the lesser of $180 of toll charges or the amount of toll charges incurred for 30 hours of access to an Internet service provider."32
5 A good online version of the Telecommunications Act of 1996 can be found at the web site of Blumenfeld & Cohen http://www.technologylaw.com/.
7 Milton Mueller, Universal Service" and the new Telecommunications Act: Mythology Made Law (March 1997) http://www.ctr.columbia.edu/vii/un ivsce/cacm.htm; Fraser, Telecommunications Competition Arrives: Is Universal Service Out of Order, 15 Fall Cal. Reg. L. Rep. 1, 1 (1995); Mark Cooper, Universal Service: A Historical Perspective and Policies for the Twenty-First Century (Dec 9, 1996) (posted at Benton Foundation Universal Service Library www.benton.org).
11 For a further explanation of the "enhanced service provider" status of ISPs and the exemption from the metered access charge, see What is the "Enhanced Service Provider" Status of Internet Service Providers, Internet Telecommunications Project http://www.cybertelecom.org/.
To notify the Commission that a compliant intrastate discount matrix for schools and libraries has been adopted, states must send a one-page letter to [the Universal Service Administration Corporation] stating this fact. A copy of the letter must also be sent to Sheryl Todd and the Office of the Secretary at the FCC. States should include a copy of the adopted intrastate discount matrix. Letters regarding the discount matrix must be received by the Office of the Secretary by December 31, 1997 to be eligible for funding beginning January 1, 1998.Id.
12 Federal-State Joint Board on Universal Service Report and Order, CC Docket No. 96-45, FCC 97-157 (May 8, 1997) http://www.fcc.gov/ccb/universal _service/fcc97157/ (hereinafter "Order").
13 See the web site of the National Association of Regulatory Utility Commissioners < http://www.erols.com/naruc/stateweb.htm> for a hyperlink list of state public utility commission webpages. See the American Library Association's Web page for further information on the status of states: http://www.ala.org/oitp/stategrid.html. See also American Library Association, Universal Service : What Needs to be Done in the States http://www.ala.org/oitp/1st_step.html (July 17, 1997).
16.5 Order Para 591.
17 Order para. 587, et seq.
18.5 "A school that either does not participate in the national school lunch program or that experiences a problem with undercounting eligible students may use federally approved alternative mechanisms to determine the percentage of their students eligible for the school lunch program. A description of federally approved alternative mechanisms can be found at 34 C.F.R. § 200.28(a)(2)(i)(B) [Code of Federal Regulations]. For example, a school may choose to conduct a survey or use eligibility for a tuition scholarship program to determine the percentage of its students eligible for the national school lunch program for purposes of applying for universal service discounts." Frequen tly Asked Questions on Universal Service and the Snowe-Rockefeller Amendment, DA 97-1374, Q11 (July 2, 1997).
The Order states that rural for schools and libraries shall be "defined in accordance with the definition adopted by the Department of Health and Human Services' Office of Rural Health Policy (ORHP/HHS). ORHP/HHS uses the Office of Management and Budget's (OMB) Metropolitan Statistical Area (MSA) designation of metropolitan and non-metropolitan counties (or county equivalents), adjusted by the most currently available Goldsmith Modification, which identifies rural areas within large metropolitan counties." Order para. 504. See Order para 649 et seq. for a detailed explanation of the definition of "rural". See also Updated Frequently Asked Questions on Universal Service for Rural Health Care Providers, Q2 (Sept. 5, 1997) (stating "Under our rules, a rural area is defined as a non-metropolitan county identified in the OMB Metropolitan Statistical Area list, together with those rural areas in metropolitan counties as identified in the most recent "Goldsmith Modification" of the OMB list. The "Goldsmith Modification" identifies rural pockets within larger urban metropolitan counties.") The FCC is promising to make available on its site a user friendly list of rural counties and area. Order note 1171. No such list was available as of September 10, 1997. See OMB BULLETIN NO. 95-04, Revised Statistical Definitions of Metropolitan Areas (MAs) and Guidance on Uses of MA Definitions (June 30, 1995) (providing guidance on how to acquire information on metropolitan areas); OMB Bulletin No. 95-04 Attachment, METROPOLITAN AREAS 1995 (June 30, 1995).
during the 30-day period applications from schools and libraries will continue to be accepted and processed, but the administrator will only commit funds to support discount requests from schools and libraries that are in the two most-disadvantaged categories of the discount matrix and that did not receive universal service discounts in the previous or current funding years. To avoid discouraging schools and libraries from applying for discounts on basic telephone service, however, schools and libraries that are in the two most-disadvantaged categories will not forfeit their priority status if they have previously applied only for discounted basic telephone service.There is some talk that, if the Fund is exhausted, the subsidy levels may be reduced in the next calendar year in order to ensure that all institutions can participate.
19.7 School and Libraries Corporation and Health Care Corporation Adopt Length of Filing Windows, Public Notice DA 97-2349 (November 6, 1997); Federal-State Joint Board on Universal Service, CC Docket 96-45, Third Report and Order, FCC 97-380 (October 14, 1997).
23 NTIA New Universal Service Guide (6-24-97) http://www.ntia.doc.gov/.
24 The Department of Education has a Technology Literacy Challenge Fund and Technology Innovation Challenge Grants. See Department of Education Web Page http://www.ed.gov/Technology/.
25.5 See School & Library Corporation, Nine Steps You Can Take Now to Prepare for the Schools and Libraries Universal Service Program (November 1997).
26 FCC FAQ, Frequently Asked Questions on Universal Service and the Snowe-Rockefeller Amendment Q28 (July 2, 1997); NECA, School, Libraries and Rural Health Care Providers Funds (accessed August 6, 1997). Until the Universal Service Administrator and its web page has been set up, the universal service fund will be temporarily administered by the National Exchange Carriers Association www.neca.org.
27 Order para. 480.
that schools and libraries will be offered competitive, cost-based prices that will match or beat the cost-based prices paid by similarly situated customers for similar services . . . a carrier [must] offer services to eligible schools and libraries at prices no higher than the lowest price it charges to similarly situated non-residential customers for similar services.Order para. 484. See also Fourth Order on Reconsideration, para. 133.
30 Order para. 586. Service providers can receive funds from The Fund in one of two ways. First, the service provider can apply to the Universal Service Fund Administrator for reimbursement. The second method is "offset" and applies only to those service providers which are also telecommunications carriers. Those service provider/carriers owe a certain amount to the universal service fund. The amount which the service providers/carriers owe to the universal service fund can be offset but the amount which the service providers should receive as a result of providing service to schools and libraries.
32FCC Fact Sheet, Informal Questions and Answers on Universal Service Benefits for Rural Health Care Providers (June 3, 1997).