Modernizing the E-Rate Program for Schools and Libraries

 
CONTENT
Federal Register, Volume 84 Issue 137 (Wednesday, July 17, 2019)
[Federal Register Volume 84, Number 137 (Wednesday, July 17, 2019)]
[Proposed Rules]
[Pages 34107-34115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15164]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket No. 13-184; FCC 19-58]
Modernizing the E-Rate Program for Schools and Libraries
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) proposes to make permanent the category two budget
approach adopted in 2014 (the ``category two'' budget approach consists
of five-year budgets for schools and libraries that provide a maximum
amount of funding to support internal connections needed for Wi-Fi
within school and library buildings). The Commission also seeks comment
on potential modifications that could simplify the category two budget
approach and decrease the administrative burden on schools and
libraries, as well as how to transition to a permanent extension of the
budget approach.
DATES: Comments are due on or before August 16, 2019 and reply comments
are due on or before September 3, 2019. If you anticipate that you will
be submitting comments but find it difficult to do so within the period
of time allowed by this document, you should advise the contact listed
below as soon as possible.
ADDRESSES: You may submit comments, identified by WC Docket No. 13-184,
by any of the following methods:
     Federal Communications Commission's Website: http://apps.fcc.gov/ecfs/. Follow the instructions for submitting comments.
     People with Disabilities: Contact the FCC to request
reasonable accommodations (accessible format documents, sign language
interpreters, CART, etc.) by email: [email protected] or phone: 202-418-
0530 or TTY: 202-418-0432.
    For detailed instructions for submitting comments and additional
information on the rulemaking process, see the SUPPLEMENTARY
INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: Kate Dumouchel, Wireline Competition
Bureau, (202) 418-1839 or TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice
of Proposed Rulemaking (NPRM) in WC Docket No. 13-184; FCC 19-58,
adopted on June 28, 2019 and released on July 9, 2019. The full text of
this document is available for public inspection during regular
business hours in the FCC Reference Center, Room CY-A257, 445 12th
Street SW, Washington, DC 20554 or at the following internet address:
https://www.fcc.gov/document/fcc-aims-speed-deployment-wi-fi-schools-and-libraries.
I. Introduction
    1. The Commission's E-Rate program is a vital source of support for
connectivity to--and within--schools and libraries. In particular, the
E-Rate program provides funding for internal connections, which are
primarily used for Wi-Fi, a technology that has enabled schools and
libraries to transition from computer labs to one-to-one digital
learning. Today, we propose to make permanent the approach adopted by
the Commission in 2014 to fund these internal connections. In so doing,
we seek to ensure that our nation's students and library patrons have
access to high-speed broadband and further the Commission's goal of
bridging the digital divide.
    2. The 2014 approach, known as the ``category two'' budget
approach, consists of five-year budgets for schools and libraries that
provide a set amount of funding to support internal connections. The
Commission also established a five-year test period (from funding year
2015 to funding year 2019) to consider whether the category two budget
approach is effective in ensuring greater access to E-Rate discounts
for internal connections.
    3. Our experience over the past few years suggests that these
budgets have resulted in a broader distribution of funding that is more
equitable and more predictable for schools and libraries. We also see
clear improvements in the way in which funding for internal connections
has been administered in the five-year period since adoption of the
category two budget approach. Therefore, we now propose to make the
[[Page 34108]]
category two budget approach permanent and seek comment on potential
modifications that could simplify the budgets, decrease the
administrative burden of applying for category two services, and
thereby speed the deployment of Wi-Fi in schools and libraries across
the country.
II. Discussion
    4. With the category two budget rules set to begin to expire for
some applicants at the end of funding year 2019 and for all applicants
at the end of funding year 2023, we are faced with a choice between
continuing with the category two budget approach or returning to the
two-in-five rules. Given our experience during the five-year test
period and the Bureau's findings in the Category Two Budget Report, we
(1) propose amending our rules to make permanent the category two
budget approach for all applicants; (2) propose and seek comment on
ways to improve the category two budget approach; and (3) seek comment
on how best to transition from the five-year test period to a permanent
extension of this approach.
    5. First and foremost, we propose to permanently extend the
category two budget approach and avoid reverting back to the two-in-
five rules for all applicants. Doing so is consistent with the Category
Two Budget Report, which generally found that the category two budget
approach has provided schools and libraries with more certain and
equitable funding for internal connections than under the two-in-five
rules. In addition, making permanent the category two budget approach
is also supported by the record received in response to the September
2017 Public Notice. We, therefore, seek comment on our proposal to make
permanent the category two budget approach and on the Bureau's overall
findings in the Category Two Budget Report.
    6. In particular, the Category Two Budget Report found that, under
the category two budget approach, applicants have had access to
category two funding every year, and no requests have been denied due
to insufficient funding. By contrast, under the two-in-five rules
approach, a small number of applicants exhausted available funding,
with most applicants receiving no funding. Additionally, 43% of schools
and 23% of libraries each year now receive category two funding as
compared to 10% of applicants under the two-in-five rules. Moreover,
the category two budget approach has generally resulted in a more
equitable distribution of funding that better approximates the makeup
of E-Rate applicants, in comparison to the distribution under the two-
in-five rules approach where funding disproportionately went to urban
schools. Category two support has been disbursed in all fifty states
and five territories and to applicants at all discount levels. We seek
comment on these and other findings in the Category Two Budget Report
and on the proposal to permanently extend the category two budget
approach.
    7. We also seek comment on the costs and benefits associated with
making permanent the category two budget rules. Do the benefits of the
category two budget approach outweigh the burdens associated with
administering them? We also seek comment more generally on the costs
associated with the budgets overall and the appropriate path forward.
    8. We propose extending several aspects of the current category two
budget approach, including maintaining the eligibility of existing
category two services and keeping the existing budget multipliers for
schools and libraries. We also seek comment on other potential ways to
improve the budget approach, including moving to district-wide budgets
and simplifying the budget calculations. Finally, we seek general
comment on ways to decrease the burden of applying for category two
services and improve administration of category two budgets for both
applicants and USAC.
    9. Eligible Services. In 2014, the Commission made managed internal
broadband services, caching, and basic maintenance of internal
connections eligible for category two support under the category two
budget approach through funding year 2019. For each service, the
Commission found that the budgets allayed concerns about wasteful
spending and provided applicants with greater flexibility to determine
their own needs. Consistent with the Commission's determination in 2014
to make certain services eligible for category two support given the
budgets' ability to prevent excessive spending, we propose extending
the eligibility of managed internal broadband services, caching, and
basic maintenance of internal connections under the permanent category
two budget approach we propose today. We seek comment on this proposal.
Further, are there additional services that we should make eligible for
category two funding or any other issues regarding category two
eligible services we should consider?
    10. Budget Levels. In the Category Two Budget Report, the Bureau
found that the category two budget approach appears to be sufficient
for most schools and libraries with approximately half of schools and
most libraries having used less than half of their allocated five-year
budget and a supermajority of schools and libraries having used less
than 90% of their budgets. Based on this finding, we propose
maintaining the existing budget multipliers for the category two budget
approach. Specifically, over a five-year funding cycle, schools would
be eligible to receive up to $150 (pre-discount) per student and
libraries are eligible to receive up to $2.30 or $5.00 (pre-discount)
per square foot (depending on their Institute for Museum and Library
Services (IMLS) locale codes). Entities with low student population or
small square footage would receive a budget floor of $9,200 over five
funding years. We recognize that student count, building age, geography
and other factors vary from entity to entity, and as such, no budget
multiplier will perfectly fit the category two budget needs for every
school and library in the country. Nevertheless, we expect that, on
balance, maintaining the existing multipliers will fit the needs of the
majority of applicants.
    11. We seek comment on this proposal or, in the alternative,
whether to change these per-student or per-square foot budget
multipliers, particularly for entities that may have participated at a
lower rate or that may face higher costs for internal connections. For
instance, we seek comment on whether the minimum budget floor should be
increased and, if so, what the appropriate budget floor level should be
to address the needs of smaller entities and increase their
participation in the program. Would, for example, increasing the budget
floor to $25,000 as some commenters suggested in response to the 2017
Public Notice be a more appropriate budget floor? Based on requests
from funding years 2015 to 2018, schools with an enrollment of 190
students or more participate at an 80% rate, which corresponds to a
pre-discount budget of approximately $30,000, roughly three times the
current funding floor, compared with those at the funding floor, which
participate at a 48% rate. Would raising the budget floor to correspond
with schools that participate at a higher rate be an appropriate budget
floor level?
    12. Similarly, we seek comment on whether to adjust the budget
multipliers for entities that may experience higher costs due to their
geographic location. For example, the current budget multipliers appear
to disadvantage rural libraries, leaving them with less than half the
category two budget support per square foot than their urban
[[Page 34109]]
counterparts despite often smaller square footage. Should we maintain
the increased budget multiplier for libraries in urban areas (i.e.,
$5.00 per square foot), or should we set a higher budget multiplier for
rural libraries, which is currently $2.30 per square foot? Commenters
should submit specific data and models to support their arguments that
additional funding is necessary, including the relative importance of
any particular factors such as rural or remote geography, building age,
or low student population. For example, to the extent that entities in
remote or Tribal areas or communities face higher category two costs,
we seek data to assist the Commission in determining the appropriate
budget multipliers.
    13. District-Wide or Library System-Wide Budget Calculations. We
seek comment on moving from a per-school or per-library budget to a
per-district or per-system budget for category two services. In 2014,
the Commission adopted per-entity budgets, requiring districts to
calculate budgets for each school in the district based on the number
of students in the school, and for library systems to calculate budgets
for each of its library outlets based on the square footage of that
outlet. Stakeholders have consistently commented on the administrative
difficulties associated with managing these per-entity budgets. For
instance, many school districts have buildings of different ages or
construction materials, and therefore some entities end up with too
large of a budget, while others end up with an insufficient budget. As
such, stakeholders have recommended moving to a district-wide or
library system-wide budget that is calculated using the total number of
students in the district or all of the buildings in the library system.
Under this approach, a district would calculate its category two budget
and then decide how and where category two E-Rate support should be
directed.
    14. There are several potential benefits to this approach. First,
as commenters contended in response to the 2017 Public Notice, moving
to a district-wide calculation would streamline the application process
for category two services from start to finish, simplifying the budget
calculations, the FCC Form 471 application, the PIA reviews of those
applications, and the FCC Form 500 cancellation process. Such a
calculation could also simplify some of the more complicated issues
that applicants face when seeking E-Rate support. For example, a
district-wide budget calculation could largely eliminate the number of
applicants that estimate student counts at new schools if the number of
students in the district is unchanged despite a new school being built.
Similarly, would a district-wide budget calculation simplify the
application process by eliminating the need for school districts to
count part-time students given that they would have the flexibility to
allocate funding as they see fit? Moreover, a district-wide calculation
should simplify the review of applications where there are shared
services by E-Rate eligible entities. Under the current approach, cost
allocation between the budgets of the entities sharing the service is
required, adding to the applicant burden. Finally, calculating budgets
on a district-wide basis would afford local entities that are familiar
with the needs of their schools the opportunity to leverage that
knowledge in making determinations about the efficient and effective
allocation of E-Rate funds in fulfillment of the program's objectives
and goals. We seek comment on each of these potential benefits and how
they would impact applicants. What are the other potential benefits
that could be realized in using district-wide budgets?
    15. We also seek comment on the costs of moving to district-wide
budgets, including with respect to the allocation and distribution of
category two funding. For instance, under a district-wide budget
approach, there is a risk that fewer entities will receive category two
E-Rate support if school districts elect to request funding only for
certain schools. For example, in some states, charter schools are
considered a part of a school district, while in others, they are
independent from the district. For charter school applicants that are
subject to school district administration, are there risks that
category two E-Rate support requested by the school district will be
unfairly distributed among the schools in the district? We seek comment
on these risks and whether any safeguards could be used to ensure that
funding is available for all eligible schools.
    16. We also seek comment on how a district-wide budget approach
should be administered. For example, how should applicants and USAC
determine which entities are part of a district for purposes of
applying for and setting district-wide category two budgets? In
particular, some parochial schools and charter schools apply as a group
for purposes of calculating a district-wide discount rate under the
Commission's rules. Should we consider using a similar approach when
setting district-wide budgets for these entities? Further, what would
happen if districts combine or separate during the five-year budget
cycle? Are there other issues we should consider, including any rules
or procedures that would need to be modified, under a district-wide
category two budget approach?
    17. We also seek comment on whether the same approach is
appropriate for library systems. In general, would library systems
benefit from a system-wide budget in the same way schools might? Our
rules also provide two budget multipliers for libraries (i.e., $2.30 or
$5.00 per square foot), depending on the library's IMLS locale code.
Would this require a modification in order for all library outlets in a
system to share the same locale code? If so, what is the best method
for determining the locale code for a system? Are there any other
administrative issues to consider in using a system-wide budget for
libraries?
    18. Finally, if we move to district-wide budgets, should we also
consider easing the equipment transfer rules within a district? With
the move to district-wide discounts and district-wide category two
budgets, the original concerns that led to the adoption of a
prohibition on equipment transfers for a period of three years after
purchase--namely, that applicants might replace or upgrade their
equipment more often than necessary or to circumvent the then-existent
two-in-five rules--would no longer be relevant. We note, at the same
time, that under section 54.516(a) of the Commission's rules, schools,
libraries, and consortia are required to maintain asset and inventory
records of equipment purchased and the actual locations of such
equipment for a period of 10 years after purchase.
    19. Budget Calculations. We seek comment on simplifying the budget
calculations generally. For example, should the student count and
square footage in the first year of a five-year cycle be used for all
five years to ease administration of the budgets? The ability to obtain
additional funding if there is a student population increase or new
library building was designed to provide flexibility, but applicants
have raised concerns about the difficulty of updating this information
during the application review process. Would having a set pre-discount
budget for five years make the review process easier because applicants
would only have to verify this information once? Or are there
significant advantages to having the budgets rise (or fall) depending
on student population or square footage each year? If so, are there
other ways to ease the review process for verifying student counts and
square footage if we
[[Page 34110]]
keep entity-level budgets on an annual basis? Should we establish a
presumption that the student counts verified in one of the last four
funding years are still accurate for the purposes of setting a category
two budget, absent an effort by the applicant to increase the student
count? Such a presumption could result in waste of funding if a
school's student population dropped significantly, for example, due to
migration of students to a new school. How could such an outcome be
avoided if we were to adopt such a presumption?
    20. Similarly, we propose to codify rounding the inflation
calculation to two decimals for the category two multipliers in funding
year 2020. This approach will simplify the calculation for USAC and
applicants and is consistent with other Commission rules that establish
rounding. We seek comment on this proposal. Recognizing that applicants
do not always know the inflation adjustment before the filing window,
we also seek comment on whether there is a better way to adjust for
inflation, such as adjusting the budgets just once every five years.
    21. Application and Administration. We also seek comment on other
ways to make the application process for category two services and the
administration of category two budgets simpler and more efficient. What
administrative changes would have the greatest impact on applicants and
USAC? For example, we seek comment on whether there are ways to
simplify how applicants request category two services on the FCC Form
471 and on whether the Commission should provide guidance on using
master contracts for category two services. Additionally, are there
changes to the FCC Form 500 cancellation process that would simplify
the category two budget process?
    22. We seek comment on the five-year budget cycles and how best to
transition from the existing category two budget rules following the
five-year test period. The category two budget rules currently
contemplate rolling budgets; that is, each year applicants calculate
the pre-discount budget based on the current funding year student
counts and budget multipliers, and then subtract the pre-discount
amounts on the commitments received in the prior four funding years.
For instance, assume a hypothetical school with 1,000 students that
first received category two funding in funding year 2015; its budget in
funding year 2015 would be $150,000. If there is no change in student
count, in funding year 2016, the school's budget would be $151,500,
minus the pre-discount amount of any funding received in funding year
2015. In funding year 2017, the budget would be $153,469.50, minus the
pre-discount amount of any funding received in funding years 2015 and
2016, and so forth through funding year 2019. If not for the five-year
test period established in the 2014 Second E-Rate Order, 80 FR 5961
(February 4, 2015), in funding year 2020, the school's budget would be
the student count multiplied by the funding year 2020 budget
multiplier, minus the pre-discount amount of any funding received in
funding years 2016, 2017, 2018, and 2019; funding received in funding
year 2015 would not count against the school's budget in funding year
2020. In this manner, the budgets were designed to be rolling, and an
applicant could determine its budget by looking to its current student
count, the current inflation-adjusted per-student budget multiplier,
and the amount of funding received in the prior four funding years. The
goal of this rolling approach is to provide applicants with greater
certainty about whether funding would be available after the end of a
five-year budget cycle and thus prevent unnecessary spikes in spending
in the last year of such a cycle.
    23. The five-year test period adopted in 2014, however, makes it
such that no applicant is able to request funding in a sixth year under
the category two budget approach, and thus although the budgets were
designed to be rolling, in practice they are not. We seek comment on
using rolling budgets as originally intended. Under this approach, in
funding year 2020, applicants would calculate their five-year budgets
based on their student counts, inflation-adjusted per-student budget
multipliers, and any funding committed in in funding years 2016, 2017,
2018, and 2019 (but not funding year 2015). What are the other benefits
of this rolling approach? What are the costs of this approach? For
example, is it administratively burdensome to calculate budgets in this
way?
    24. As an alternative to a rolling five-year cycle approach, we
seek comment on moving to a fixed five-year cycle from funding year
2020 through funding year 2024, with a new fixed five-year budget
starting for all applicants every five years. Would a fixed five-year
cycle be a more efficient and/or an easier-to-administer system than a
rolling five-year cycle approach? How can applicants be incentivized to
avoid wasteful spending at the end of a fixed cycle by requesting funds
solely because the funds are scheduled to expire? What are the other
costs and benefits of rolling and fixed budget cycles? We seek comment
on these approaches and any alternatives.
    25. If we were to use a rolling budget approach, should we consider
modifying the rolling budgets to smooth the amount of support available
over a five-year cycle by providing some funding each funding year? For
instance, should we consider a system where an additional 20% is added
to the applicant budget each year while still having a maximum budgeted
amount that can be spent each year? Continuing with the illustration
above of a school with 1,000 students, in the first year the school
received funding, its budget would be $150,000. In the following year,
the school's budget would be $151,500, minus the pre-discount amount of
any funding received in the prior funding year, plus $30,300, which is
20% of the school's $151,500 budget. Under this additive approach, a
school would be able to roll unused funding from year to year; however,
applicants would not be permitted to request more than $150 per student
(adjusted for inflation) in any given funding year. This approach would
both allow applicants to either seek funding each year or carry the
budget forward to the next year, and ensure that applicants always have
access to at least some funding in every year. Because student counts
can fluctuate, an applicant that sees a large decline in student
population in one funding year could have a much smaller category two
budget than previously anticipated. Using this additive approach of
providing some portion of funding to the school each funding year could
smooth that fluctuation. However, it could make tracking budgets more
challenging. Specifically, under the current system, applicants
calculate budgets using three variables (i.e., their current student
count, the inflation-adjusted per-student budget multiplier, and the
amount of funding received in the prior four funding years) while
applicants would have to track the added 20% each year, adding a fourth
variable to their calculations each year. We seek comment on this
additive approach, its costs and benefits, and any alternatives to
smooth out the amount of support available under a rolling five-year
budget approach while minimizing administrative burdens on applicants
and USAC.
[[Page 34111]]
    26. Further, we seek comment on how to transition from the existing
category two budget rules to any modified category two budget rules. As
described above, if we simply extend the current rules, in funding year
2020, an applicant's budget calculation would take into account funding
requested in funding years 2016 through 2019. For administrative
efficiency, however, we seek comment on starting fresh in funding year
2020 and resetting all applicant budgets, to allow applicants a new
opportunity to track their category two budgets and ease the
transition's impact on all E-Rate program stakeholders. We recognize,
however, that some applicants have not requested all of their category
two budgets from funding year 2015 through 2019, while others will have
used all of their budgets for those years. We, therefore, also seek
comment on whether there is an administratively feasible way to take
previous category two funding commitments into account when
transitioning all applicants in funding year 2020.
    27. Alternatively, depending on the timing of the new rules and the
extent of the changes, should we consider using funding year 2020 as a
bridge to transition to the final rules we adopt in this proceeding?
For example, should we consider extending the existing rules for one
funding year without any modifications? This approach could allow
applicants that received support in funding year 2015 and have
completed the five-year cycle, or applicants still within their five-
year cycles with funds remaining in their budgets, to request support
and allow for a smoother transition to the new rules. Should we permit
applicants who have completed a five-year cycle to nevertheless access
any unused funds in funding year 2020, in what would be a sixth year?
Similarly, should any particular restrictions apply to applicants that
did not receive category two support in funding year 2015 through 2019?
Should we further provide some additional category two support to the
existing five-year budgets, for example, $30 per student or 20% of the
library budget of $2.30 or $5.00? Commenters supporting this
alternative are encouraged to also address what category two funding
opportunities, if any, should be made for those E-Rate eligible
entities who have already depleted their respective category two
budgets. Or should we consider having a second, later filing window for
category two service requests in funding year 2020? How can we best
reduce applicant confusion and provide for simplified administration of
the category two budgets as we move beyond funding year 2019? We seek
comment on other alternatives that would afford a smooth and effective
transition to the category two rules we adopt in the context of this
proceeding.
III. Procedural Matters
    28. Initial Regulatory Flexibility Analysis. As required by the
Regulatory Flexibility Act of 1980, as amended (RFA), the Commission
has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the
possible significant economic impact on a substantial number of small
entities by the policies and rules proposed in this Notice of Proposed
Rulemaking (NPRM). Written comments are requested on this IRFA.
Comments must be identified as responses to the IRFA and must be filed
by the deadlines for comments on the NPRM. The Commission will send a
copy of the NPRM, including this IRFA, to the Chief Counsel for
Advocacy of the Small Business Administration (SBA). In addition, the
NPRM and IRFA (or summaries thereof) will be published in the Federal
Register.
    29. The Commission is required by Section 254 of the Communications
Act of 1934, as amended, to promulgate rules to implement the universal
service provisions of Section 254. On May 8, 1997, the Commission
adopted rules to reform its system of universal service support
mechanisms so that universal service is preserved and advanced as
markets move toward competition. Specifically, under the schools and
libraries universal service support mechanism, also known as the E-Rate
program, eligible schools, libraries, and consortia that include
eligible schools and libraries may receive discounts for eligible
telecommunications services, internet access, and internal connections.
    30. Taking steps to close the digital divide is a top priority for
the Commission. The E-Rate program provides a vital source of support
to schools and libraries, ensuring that students and library patrons
across the nation have access to high-speed broadband and essential
communications services. The rules we propose in the NPRM seek to make
permanent the category two budget approach for all E-Rate applicants
beyond funding year 2019. We seek comment in the NPRM on streamlining
and simplifying the administration of the E-Rate program for
applicants, service providers, and the Universal Service Administrative
Company. In addition, the rules that we propose or seek comment on in
the NPRM would eliminate confusion over how to apply for category two
services which provide connectivity within schools and libraries and
include internal connections, basic maintenance of internal
connections, and managed internal broadband services. We seek comment
on our proposals as well as comments on other ways to lessen the
administrative burden on participating schools and libraries within the
framework of the category two budget approach.
    31. The proposed action is authorized pursuant to sections 1
through 4, 201-205, 254, 303(r), and 403 of the Communications Act of
1934, as amended by the Telecommunications Act of 1996, 47 U.S.C. 151
through 154, 201 through 205, 254, 303(r), and 403.
    32. The RFA directs agencies to provide a description of and, where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. The RFA generally defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small business concern'' under the Small Business
Act. A small business concern is one that: (1) Is independently owned
and operated; (2) is not dominant in its field of operation; and (3)
satisfies any additional criteria established by the Small Business
Administration (SBA).
    33. Small Businesses, Small Organizations, Small Governmental
Jurisdictions. Our actions, over time, may affect small entities that
are not easily categorized at present. We therefore describe here, at
the outset, three broad groups of small entities that could be directly
affected herein. First, while there are industry specific size
standards for small businesses that are used in the regulatory
flexibility analysis, according to data from the SBA's Office of
Advocacy, in general a small business is an independent business having
fewer than 500 employees. These types of small businesses represent
99.9% of all businesses in the United States which translates to 28.8
million businesses.
    34. Next, the type of small entity described as a ``small
organization'' is generally ``any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.''
Nationwide, as of August 2016, there were approximately 356,494 small
organizations based on registration and tax data filed by nonprofits
with the Internal Revenue Service (IRS).
[[Page 34112]]
    35. Finally, the small entity described as a ``small governmental
jurisdiction'' is defined generally as ``governments of cities,
counties, towns, townships, villages, school districts, or special
districts, with a population of less than fifty thousand.'' U.S. Census
Bureau data from the 2012 Census of Governments indicate that there
were 90,056 local governmental jurisdictions consisting of general
purpose governments and special purpose governments in the United
States. Of this number there were 37,132 General purpose governments
(county, municipal and town or township) with populations of less than
50,000 and 12,184 Special purpose governments (independent school
districts and special districts) with populations of less than 50,000.
The 2012 U.S. Census Bureau data for most types of governments in the
local government category show that the majority of these governments
have populations of less than 50,000. Based on this data we estimate
that at least 49,316 local government jurisdictions fall in the
category of ``small governmental jurisdictions.''
    36. As noted, a ``small entity'' includes non-profit and small
government entities. Under the schools and libraries universal service
support mechanism, which provides support for elementary and secondary
schools and libraries, an elementary school is generally ``a non-profit
institutional day or residential school that provides elementary
education, as determined under state law.'' A secondary school is
generally defined as ``a non-profit institutional day or residential
school that provides secondary education, as determined under state
law,'' and not offering education beyond grade 12. A library includes
``(1) a public library, (2) a public elementary school or secondary
school library, (3) an academic library, (4) a research library, and
(5) a private library, but only if the state in which such private
library is located determines that the library should be considered a
library for the purposes of this definition.'' For-profit schools and
libraries, and schools and libraries with endowments in excess of
$50,000,000, are not eligible to receive discounts under the program,
nor are libraries whose budgets are not completely separate from any
schools. Certain other statutory definitions apply as well. The SBA has
defined for-profit, elementary and secondary schools and libraries
having $6 million or less in annual receipts as small entities. In
funding year 2017, approximately 104,500 schools and 11,490 libraries
received funding under the schools and libraries universal service
mechanism. Although we are unable to estimate with precision the number
of these entities that would qualify as small entities under SBA's size
standard, we estimate that fewer than 104,500 schools and 11,490
libraries might be affected annually by our action, under current
operation of the program.
    37. Incumbent Local Exchange Carriers (LECs). Neither the
Commission nor the SBA has developed a size standard for small
incumbent local exchange carriers. The closest applicable NAICS Code
category is Wired Telecommunications Carriers. Under the applicable SBA
size standard, such a business is small if it has 1,500 or fewer
employees. U.S. Census Bureau data for 2012 indicate that 3,117 firms
operated the entire year. Of this total, 3,083 operated with fewer than
1,000 employees. Consequently, the Commission estimates that most
providers of incumbent local exchange service are small businesses that
may be affected by our actions. According to Commission data, one
thousand three hundred and seven (1,307) Incumbent Local Exchange
Carriers reported that they were incumbent local exchange services. Of
this total 1,307 an estimated 1,006 have 1,500 or fewer employees and
301 have more than 1,500 employees. Thus, using the SBA's size standard
the majority of incumbent LECs can be considered small entities.
    38. We have included small incumbent LECs in this RFA analysis. A
``small business'' under the RFA is one that, inter alia, meets the
pertinent small business size standard (e.g., a telephone
communications business having 1,500 or fewer employees), and ``is not
dominant in its field of operation.'' The SBA's Office of Advocacy
contends that, for RFA purposes, small incumbent LECs are not dominant
in their field of operation because any such dominance is not
``national'' in scope. We have, therefore, included small incumbent
carriers in this RFA analysis, although we emphasize that this RFA
action has no effect on the Commission's analyses and determinations in
other, non-RFA contexts.
    39. Interexchange Carriers (IXCs). Neither the Commission nor the
SBA has developed a definition of small entities specifically
applicable to IXCs. The closest NAICS Code category is Wired
Telecommunications Carriers. The applicable size standard under SBA
rules is that such a business is small if it has 1,500 or fewer
employees. U.S. Census Bureau data for 2012 indicate that 3,117 firms
operated for the entire year. Of that number, 3,083 operated with fewer
than 1,000 employees. According to internally developed Commission
data, 359 companies reported that that their primary telecommunications
service activity was the provision of interexchange services. Of this
total, an estimated 317 have 1,500 or fewer employees. Consequently,
the Commission estimates that the majority of interexchange service
providers are small entities.
    40. Competitive Access Providers (CAPs). Neither the Commission nor
the SBA has developed a definition of small entities specifically
applicable to CAPs. The closest applicable definition under the SBA
rules is for Wired Telecommunications Carriers. Under the SBA size
standard, a Wired Telecommunications Carrier is a small entity if it
employs no more than 1,500 employees. U.S. Census Bureau data for 2012
show that 3,117 firms operated during that year. Of that number, 3,083
operated with fewer than 1,000 employees. According to Commission data,
1,442 CAPs and competitive local exchange carriers (competitive LECs)
reported that they were engaged in the provision of competitive local
exchange services. Of these 1,442 CAPs and competitive LECs, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than
1,500 employees. Consequently, the Commission estimates that most
providers of competitive exchange services are small businesses.
    41. Wireless Telecommunications Carriers (except Satellite). This
industry comprises establishments engaged in operating and maintaining
switching and transmission facilities to provide communications via the
airwaves. Establishments in this industry have spectrum licenses and
provide services using that spectrum, such as cellular services, paging
services, wireless internet access, and wireless video services. The
appropriate size standard under SBA rules is that such a business is
small if it has 1,500 or fewer employees. For this industry, U.S.
Census Bureau data for 2012 show that there were 967 firms that
operated for the entire year. Of this total, 955 firms had employment
of 999 or fewer employees and 12 had employment of 1000 employees or
more. Thus, under this category and the associated size standard, the
Commission estimates that the majority of wireless telecommunications
carriers (except satellite) are small entities.
    42. Wireless Telephony. Wireless telephony includes cellular,
personal communications services, and
[[Page 34113]]
specialized mobile radio telephony carriers. The closest applicable SBA
category is Wireless Telecommunications Carriers (except Satellite).
Under the SBA small business size standard, a business is small if it
has 1,500 or fewer employees. For this industry, U.S. Census Bureau
data for 2012 show that there were 967 firms that operated for the
entire year. Of this total, 955 firms had fewer than 1,000 employees
and 12 firms had 1,000 employees or more. Thus, under this category and
the associated size standard, the Commission estimates that a majority
of these entities can be considered small. According to Commission
data, 413 carriers reported that they were engaged in wireless
telephony. Of these, an estimated 261 have 1,500 or fewer employees and
152 have more than 1,500 employees. Therefore, more than half of these
entities can be considered small.
    43. Internet Service Providers (Broadband). Broadband internet
service providers include wired (e.g., cable, DSL) and VoIP service
providers using their own operated wired telecommunications
infrastructure fall in the category of Wired Telecommunication
Carriers. Wired Telecommunications Carriers are comprised of
establishments primarily engaged in operating and/or providing access
to transmission facilities and infrastructure that they own and/or
lease for the transmission of voice, data, text, sound, and video using
wired telecommunications networks. Transmission facilities may be based
on a single technology or a combination of technologies. The SBA size
standard for this category classifies a business as small if it has
1,500 or fewer employees. U.S. Census Bureau data for 2012 show that
there were 3,117 firms that operated that year. Of this total, 3,083
operated with fewer than 1,000 employees. Consequently, under this size
standard the majority of firms in this industry can be considered
small.
    44. Internet Service Providers (Non-Broadband). Internet access
service providers such as Dial-up internet service providers, VoIP
service providers using client-supplied telecommunications connections
and internet service providers using client-supplied telecommunications
connections (e.g., dial-up ISPs) fall in the category of All Other
Telecommunications. The SBA has developed a small business size
standard for All Other Telecommunications which consists of all such
firms with gross annual receipts of $32.5 million or less. For this
category, U.S. Census Bureau data for 2012 shows that there were 1,442
firms that operated for the entire year. Of these firms, a total of
1,400 had gross annual receipts of less than $25 million. Consequently,
under this size standard a majority of firms in this industry can be
considered small.
    45. Vendors of Infrastructure Development or ``Network Buildout.''
The Commission has not developed a small business size standard
specifically directed toward manufacturers of network facilities. There
are two applicable SBA categories in which manufacturers of network
facilities could fall and each have different size standards under the
SBA rules. The SBA categories are ``Radio and Television Broadcasting
and Wireless Communications Equipment'' with a size standard of 1,250
employees or less and ``Other Communications Equipment Manufacturing''
with a size standard of 750 employees or less.'' U.S. Census Bureau
data for 2012 show that for Radio and Television Broadcasting and
Wireless Communications Equipment firms 841 establishments operated for
the entire year. Of that number, 828 establishments operated with fewer
than 1,000 employees, 7 establishments operated with between 1,000 and
2,499 employees and 6 establishments operated with 2,500 or more
employees. For Other Communications Equipment Manufacturing, U.S.
Census Bureau data for 2012 shows that 383 establishments operated for
the year. Of that number 379 operated with fewer than 500 employees and
4 had 500 to 999 employees. Based on this data, we conclude that the
majority of Vendors of Infrastructure Development or ``Network
Buildout'' are small.
    46. Telephone Apparatus Manufacturing. This industry comprises
establishments primarily engaged in manufacturing wire telephone and
data communications equipment. These products may be standalone or
board-level components of a larger system. Examples of products made by
these establishments are central office switching equipment, cordless
telephones (except cellular), PBX equipment, telephones, telephone
answering machines, LAN modems, multi-user modems, and other data
communications equipment, such as bridges, routers, and gateways.'' The
SBA size standard for Telephone Apparatus Manufacturing is all such
firms having 1,250 or fewer employees. U.S. Census Bureau data for 2012
show that there were 266 establishments that operated for the entire
year. Of this total, 262 operated with fewer than 1,000 employees.
Thus, under this size standard, the majority of firms can be considered
small.
    47. Radio and Television Broadcasting and Wireless Communications
Equipment Manufacturing. This industry comprises establishments
primarily engaged in manufacturing radio and television broadcast and
wireless communications equipment. Examples of products made by these
establishments are: Transmitting and receiving antennas, cable
television equipment, GPS equipment, pagers, cellular phones, mobile
communications equipment, and radio and television studio and
broadcasting equipment. The SBA has established a small business size
standard for this industry of 1,250 employees or less. U.S. Census
Bureau data for 2012 show that 841 establishments operated in this
industry in that year. Of that number, 828 establishments operated with
fewer than 1,000 employees, 7 establishments operated with between
1,000 and 2,499 employees and 6 establishments operated with 2,500 or
more employees. Based on this data, we conclude that a majority of
manufacturers in this industry are small.
    48. The proposals under consideration in the NPRM, if adopted, may
result in new and/or modified reporting, recordkeeping and other
compliance requirements for both small and large entities. At this
time, the Commission cannot quantify the cost of compliance with the
potential rule changes in the NPRM, but we anticipate that the result
of any rule changes will produce requirements that are equal to or less
than existing requirements, and we do not believe small entities will
have to hire attorneys, engineers, consultants, or other professionals
in order to comply. Moving from a per-school or per-library budget to a
per-district or per-system budget for category two services, for
example, would streamline the application process for category two
services from start to finish, simplifying the calculation, the FCC
Form 471 application, Program Integrity Assurance (PIA) reviews, and
the FCC Form 500 cancellation process. Moreover, adopting this approach
may also simplify some of the more complicated issues that applicants
face when seeking E-Rate support. Additionally, to find other ways to
reduce any administrative processes which could impact compliance
costs, we have sought comment on how the application process for
category two services can be made simpler and more efficient. Regarding
our proposal to amend our rules to make permanent the
[[Page 34114]]
category two budget approach beyond funding year 2019 in five-year
funding cycle increments, we have sought comment on whether the
benefits associated with making permanent the category two budget rules
outweigh the cost of compliance associated with administering them.
    49. The RFA requires an agency to describe any significant,
specifically small business, alternatives that it has considered in
reaching its proposed approach, which may include the following four
alternatives (among others): ``(1) the establishment of differing
compliance or reporting requirements or timetables that take into
account the resources available to small entities; (2) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the rule for such small entities; (3) the
use of performance rather than design standards; and (4) an exemption
from coverage of the rule, or any part thereof, for such small
entities.''
    50. In the NPRM, we have taken steps to minimize the economic
impact on small entities with the rule changes that we have proposed.
Under the current E-Rate program, the category two budget rules will
begin to sunset in funding year 2020. Absent a rule change, applicants
seeking category two services will have to navigate two sets of rules
until funding year 2024. We have therefore proposed amending the rules
to make permanent the category two budget approach for all applicants
beyond funding year 2019, which, if adopted, will remove the burden and
the cost to small entities of having to navigate and comply with two
different sets of rules. This proposal will also lessen the reporting
requirements on small entities thereby lessening their administrative
costs for report preparation. To further reduce the reporting and
administrative requirements for small entities, we seek comment on
moving to a district-wide or system-wide budget, rather than a school
entity or library entity budget. We anticipate that permitting school
districts and library systems to calculate a district-wide budget,
rather than maintaining records and allocating costs between budgets
for each school and library, may simplify the current application
process by reducing the number of applications filed, reducing the
paperwork burden for reporting student counts, and reducing the
complexity of the budgets overall. The Commission expects to more fully
consider ways to minimize the economic impact and explore alternatives
for small entities following the review of comments filed in response
to the NPRM.
    51. Federal Rules that May Duplicate, Overlap, or Conflict with the
Proposed Rules. None.
    52. Paperwork Reduction Act. The NPRM may result in revised
information collection requirements. If the Commission adopts any
revised information collection requirement, the Commission will publish
a notice in the Federal Register inviting the public to comment on the
requirement, as required by the Paperwork Reduction Act of 1995, Public
Law 104-13 (44 U.S.C. 3501-3520). In addition, pursuant to the Small
Business Paperwork Relief Act of 2002, Public Law 107-198, see 44
U.S.C. 3506(c)(4), the Commission seeks specific comment on how it
might ``further reduce the information collection burden for small
business concerns with fewer than 25 employees.''
    53. Ex Parte Rules. This proceeding shall be treated as a ``permit-
but-disclose'' proceeding in accordance with the Commission's ex parte
rules. Persons making ex parte presentations must file a copy of any
written presentation or a memorandum summarizing any oral presentation
within two business days after the presentation (unless a different
deadline applicable to the Sunshine period applies). Persons making
oral ex parte presentations are reminded that memoranda summarizing the
presentation must (1) list all persons attending or otherwise
participating in the meeting at which the ex parte presentation was
made, and (2) summarize all data presented and arguments made during
the presentation. If the presentation consisted in whole or in part of
the presentation of data or arguments already reflected in the
presenter's written comments, memoranda, or other filings in the
proceeding, the presenter may provide citations to such data or
arguments in his or her prior comments, memoranda, or other filings
(specifying the relevant page and/or paragraph numbers where such data
or arguments can be found) in lieu of summarizing them in the
memorandum. Documents shown or given to Commission staff during ex
parte meetings are deemed to be written ex parte presentations and must
be filed consistent with rule 1.1206(b). In proceedings governed by
rule 1.49(f) or for which the Commission has made available a method of
electronic filing, written ex parte presentations and memoranda
summarizing oral ex parte presentations, and all attachments thereto,
must be filed through the electronic comment filing system available
for that proceeding, and must be filed in their native format (e.g.,
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding
should familiarize themselves with the Commission's ex parte rules.
    54. Filing Procedures. Pursuant to sections 1.415 and 1.419 of the
Commission's rules, 47 CFR 1.415, 1.419, interested parties may file
comments and reply comments on or before the dates indicated on the
first page of this document. Comments and reply comments may be filed
using the Commission's Electronic Comment Filing System (ECFS). See
Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121
(1998).
     Electronic Filers: Comments may be filed electronically
using the internet by accessing the ECFS: http://apps.fcc.gov/ecfs/.
     Paper Filers: Parties who choose to file by paper must
file an original and one copy of each filing.
    If more than one docket or rulemaking number appears in the caption
of this proceeding, filers must submit two additional copies for each
additional docket or rulemaking number. Filings can be sent by hand or
messenger delivery, by commercial overnight courier, or by first-class
or overnight U.S. Postal Service mail. All filings must be addressed to
the Commission's Secretary, Office of the Secretary, Federal
Communications Commission.
     All hand-delivered or messenger-delivered paper filings
for the Commission's Secretary must be delivered to FCC Headquarters at
445 12th St. SW, Room TW-A325, Washington, DC 20554. The filing hours
are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together
with rubber bands or fasteners. Any envelopes and boxes must be
disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9050 Junction Drive,
Annapolis Junction, MD 20701.
     U.S. Postal Service first-class, Express, and Priority
mail must be addressed to 445 12th Street SW, Washington, DC 20554.
    55. People with Disabilities: To request materials in accessible
formats for people with disabilities (braille, large print, electronic
files, audio format), send an email to [email protected] or call the
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
[[Page 34115]]
IV. Ordering Clauses
    56. Accordingly, it is ordered that, pursuant to the authority
found in sections 1 through 4, 201-202, 254, and 303(r) of the
Communications Act of 1934, as amended, 47 U.S.C. 151 through 154, 201
through 202, 254, and 303(r), this Notice of Proposed Rulemaking is
adopted.
    57. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, shall send a
copy of this Notice of Proposed Rulemaking, including the Initial
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of
the Small Business Administration.
Federal Communications Commission.
Marlene Dortch,
Secretary.
Proposed Rule
    For the reason discussed in the preamble, the Federal
Communications Commission proposes to amend 47 CFR part 54 as follows:
PART 54--UNIVERSAL SERVICE
0
1. The authority citation continues to read as follows:
    Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220,
254, 303(r), 403, and 1302, unless otherwise noted.
0
2. Amend Sec.  54.502 by revising paragraph (b), removing paragraph (c)
and redesignating paragraph (d) as paragraph (c) to read as follows:
Sec.  54.502  Eligible Services.
* * * * *
    (b) Category Two Budgets. Libraries, schools, or school districts
with schools that receive funding for category two services pursuant to
paragraphs (b)(1) through (6) of this section.
    (1) Five-year budget. Each eligible school or library shall be
eligible for a budgeted amount of support for category two services
over a five-year funding cycle beginning the first funding year support
is received. Excluding category two support committed prior to funding
year 2020, each school or library shall be eligible for the total
available budget less the pre-discount amount of category two services
commitments in the prior four funding years. The category two budget
levels and the funding floor shall be adjusted for inflation annually
in accordance with Sec.  54.507(a)(2). Beginning in funding year 2020,
the dollar amount shall be rounded to two decimal points. The increase
shall be rounded to the nearest 0.01 by rounding 0.005 and above to the
next higher 0.01 and otherwise rounding to the next lower 0.01.
    (2) School budget. Each eligible school shall be eligible for
support for category two services up to a pre-discount price of $150
per student (adjusted for inflation since funding year 2015) over a
five-year funding cycle. Applicants shall calculate the student count
per district at the time the discount is calculated each funding year.
New schools may estimate the number of students but shall repay any
support provided in excess of the maximum budget based on student
enrollment the following funding year.
    (3) Library budget. Each eligible library located within the
Institute of Museum and Library Services locale codes of ``11--City,
Large,'' defined as a territory inside an urbanized area and inside a
principal city with a population of 250,000 or more, ``12--City,
Midsize,'' defined as a territory inside an urbanized area and inside a
principal city with a population less than 250,000 and greater than or
equal to 100,000, or ``21--Suburb, Large,'' defined as a territory
outside a principal city and inside an urbanized area with population
of 250,000 or more, shall be eligible for support for category two
services, up to a pre-discount price of $5.00 per square foot (adjusted
for inflation since funding year 2015) over a five-year funding cycle.
All other eligible libraries shall be eligible for support for category
two services, up to a pre-discount price of $2.30 per square foot
(adjusted for inflation since funding year 2015) over a five-year
funding cycle. Applicants shall provide the total area for all floors,
in square feet, of each library outlet separately, including all areas
enclosed by the outer walls of the library outlet and occupied by the
library, including those areas off-limits to the public.
    (4) Funding floor. Each eligible school and library will be
eligible for support for category two services up to at least a pre-
discount price of $9,200 (adjusted for inflation since funding year
2015) over a five-year funding cycle.
    (5) Requests. Applicants shall request support for category two
services for each school or library based on the number of students per
school building or square footage per library building. Category two
funding for a school or library may not be used for another school or
library. If an applicant requests less than the maximum budgeted
category two support available for a school or library, the applicant
may request the remaining balance in a school's or library's category
two budget in subsequent funding years of the five-year funding cycle.
The costs for category two services shared by multiple eligible
entities shall be divided reasonably between each of the entities for
which support is sought in that funding year.
    (6) Non-instructional buildings. Support is not available for
category two services provided to or within non-instructional school
buildings or separate library administrative buildings unless those
category two services are essential for the effective transport of
information to or within one or more instructional buildings of a
school or non-administrative library building, or the Commission has
found that the use of those services meets the definition of
educational purpose, as defined in Sec.  54.500.
* * * * *
[FR Doc. 2019-15164 Filed 7-16-19; 8:45 am]
BILLING CODE 6712-01-P