01-10-97 CC Docket 96-45 Reply Comments

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the Matter of			 )				    
				  	 )
Federal-State Joint Board on	 )		CC Docket No. 96-45	
Universal Service            	 )

REPLY COMMENTS OF THE
NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION

Larry Irving    				Barbara S. Wellbery    
Assistant Secretary for			Chief Counsel
Communications & Information		             



Shirl Kinney				Cathleen K. Wasilewski
Deputy Assistant Secretary		Counsel 


Kathryn C. Brown		   	                  
  Associate Administrator		        

Mark Bykowsky
Norma Fleischman
James McConnaughey
Tim Sloan

Office of Policy Analysis
 and Development

Stephen Downs
Shari Wyatt

Office of Telecommunications and
 Information Applications

Roanne Robinson

Office of the Assistant Secretary


							National Telecommunications
							and Information Administration	

U.S. Department of Commerce
Room 4713
14th Street and Constitution Ave., N.W.
Washington, D.C.  20230
(202) 482-1816

								January 10, 1997

TABLE OF CONTENTS

Section

Summary

I. INTRODUCTION

II. NTIA SUPPORTS THE JOINT BOARD'S PROPOSED DEFINITION OF THE FEDERAL UNIVERSAL SERVICE PACKAGE

III. FORWARD-LOOKING COSTS OUGHT TO BE THE BASIS FOR IDENTIFYING ANY AREA AS "HIGH COST" AND AN AREA SHOULD BE CLASSIFIED AS HIGH COST BY COMPARING THE COSTS OF SERVING THAT AREA WITH A NATIONWIDE AVERAGE COST BENCHMARK

IV. CONTRIBUTIONS TO THE FEDERAL UNIVERSAL SERVICE FUND SHOULD BE BASED ON A FIRM'S COMBINED INTERSTATE AND INTRASTATE REVENUES

V. THE JOINT BOARD'S RECOMMENDATIONS PROVIDE A FRAMEWORK FOR ENSURING THAT OUR NATION'S SCHOOLS, LIBRARIES, AND RURAL HEALTH CARE PROVIDERS ARE ABLE TO HAVE AFFORDABLE ACCESS TO INFORMATION TECHNOLOGY

A. Schools and Libraries

1. Technology and curriculum should be integrated

2. Educational access to technology should be prudently supported and periodically reviewed

3. Schools and libraries must receive technical and informational assistance to ensure their successful participation in the new universal service support system

4. State regulators should have primary responsibility for identifying similarly situated schools and libraries

5. The Recommended Decision's discount rate structure for the most disadvantaged schools should be revised to reflect better their area cost situations

6. A sound basis for discounting rates must be developed for libraries and private schools

7. The Commission must address the applicability of discounted rates and other aspects of the new universal service policy with respect to this nation's tribes

8. The Joint Board's recommended level of support is not unreasonable

9. The Recommended Decision's current trigger point for giving priorities to the most disadvantaged schools and libraries should be lowered

10. Non-toll Internet access for rural or insular schools or libraries should be explored

B. Health Care Providers

VI. CONCLUSION

APPENDIX: Survey of Rural Telemedicine TIIAP Grantees

SUMMARY

NTIA commends the Joint Board for its work in developing the new universal service policies mandated by the Telecommunications Act of 1996 (1996 Act). The Recommended Decision is a testament to the spirit of collaboration and cooperation between Federal and State regulators in addressing the many difficult issues encompassed within universal service. NTIA believes that the Joint Board's recommendations chart a course that will bring the nation closer to achieving its fundamental universal service goal -- ensuring that all Americans have access to essential telecommunications service at affordable rates.

The ultimate measure of those policies, however, is their success in maintaining and, indeed, increasing telephone subscribership. That is, after all, the most direct way of determining whether policies aimed at promoting affordable telephone rates have hit their mark. In NTIA's comments in the Commission's proceeding on telephone subscribership, we urged the Commission to establish a National Subscribership Goal: By December 31, 2000, in each State, the average level of telephone penetration among households meeting certain designated demographic and geographic characteristics should be no less than the nationwide average that existed as of November 1996. If that goal is not achieved, the universal service review currently scheduled for January 1, 2001 should focus on ways to amend the universal service policies adopted in this proceeding so as to achieve promptly the National Subscribership Goal.

Although NTIA supports the broad outlines and many specific provisions of the Recommended Decision, we nevertheless offer some suggested modifications in several areas:

First, NTIA supports the Joint Board's proposed definition of the Federal universal service package. We also urge the Commission to adopt the Board's recommendations that universal service support be made available for the provision of toll blocking and toll limitation service to low-income customers and that carriers be barred from disconnecting the local telephone service of low-income subscribers for nonpayment of long distance charges. Further, we agree that some support should be given to single line business customers in high cost areas.

Second, the size of universal service subsidies in high cost areas should be determined by comparing the costs of providing the Federally-defined universal service package in those areas (with the costs developed by a mechanism beyond the control of the serving firms) to the average costs of providing the same set of services throughout the rest of the country. NTIA believes that this approach is both fairer and more consistent with the 1996 Act than the approach proposed in the Recommended Decision, which would equate high cost support to the difference between the costs of serving an area and a nationwide average revenue benchmark.

Third, NTIA recommends that all providers of interstate telecommunications services should be required to contribute to the funding of universal service based on their combined gross revenues -- intrastate and interstate alike -- less payments made for telecommunications services received from other companies who also pay monies into the Federal universal service fund. Using combined revenues (rather than, for example, interstate revenues alone) is consistent with congressional intent and ensures that the burdens of supporting the nationwide universal service package mandated by the 1996 Act are borne equitably by all telecommunications service providers and their customers.

Fourth, NTIA offers a number of refinements to the Joint Board's recommended mechanisms for providing essential services to the nation's schools and libraries. Most prominently:

While it would be appropriate, in non-competitive situations, to base rates for discounted services to schools and libraries on the lowest price charged to "similarly-situated non-residential customers, State regulators ought to determine which customers are similarly-situated.

The Board's proposed trigger point for giving priority to the most disadvantaged schools and libraries should be lowered.

Non-toll Internet access for rural or insular schools and libraries should be explored.

Finally, NTIA offers an analysis of data from grantees in our Telecommunications Information Infrastructure Applications Program (TIIAP) to assist the Commission and the Joint Board in their deliberations on universal service support for rural health care providers.

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, D.C. 20554

In the Matter of			 )				    
				  	 )
Federal-State Joint Board on	 )		CC Docket No. 96-45	
Universal Service            	 )

REPLY COMMENTS OF THE

NATIONAL TELECOMMUNICATIONS AND INFORMATION ADMINISTRATION

The National Telecommunications and Information Administration (NTIA), an Executive Branch agency within the Department of Commerce, is the President's principal advisor on domestic and international telecommunications and information policy. NTIA respectfully replies to comments submitted in response to the Recommended Decision of the Federal-State Joint Board (Joint Board) in the above-captioned proceeding.⁽¹⁾

I. INTRODUCTION

NTIA commends the Joint Board for its work in developing the new universal service policies mandated by the Telecommunications Act of 1996 (1996 Act).⁽²⁾ The Recommended Decision is a testament to the spirit of collaboration and cooperation between Federal and State regulators in addressing the many difficult issues encompassed within universal service. NTIA believes that the Joint Board's recommendations chart a course that will bring the nation closer to achieving its fundamental universal service goal -- ensuring that all Americans have access to essential telecommunications service at affordable rates.

The ultimate measure of those policies, however, is their success in maintaining and, indeed, increasing telephone subscribership. That is, after all, the most direct way of determining whether policies aimed at promoting affordable telephone rates have hit their mark. In NTIA's comments in the Commission's proceeding on telephone subscribership, we urged the Commission to establish a National Subscribership Goal: By December 31, 2000, in each State, the average level of telephone penetration among households meeting certain designated demographic and geographic characteristics should be no less than the nationwide average that existed as of November 1996.⁽³⁾ If that goal is not achieved, the universal service review currently scheduled for January 1, 2001 should focus on ways to amend the universal service policies adopted in this proceeding so as to achieve promptly the National Subscribership Goal.⁽⁴⁾

Although NTIA supports the broad outlines and many specific provisions of the Recommended Decision, we nevertheless offer some suggested modifications in several areas:

Second, the size of universal service subsidies in high cost areas should be determined by comparing the costs of providing the Federally-defined universal service package in those areas (with the costs developed by a mechanism beyond the control of the serving firms) to the average costs of providing the same set of services throughout the rest of the country.⁽⁶⁾ NTIA believes that this approach is both fairer and more consistent with the 1996 Act than the approach proposed in the Recommended Decision, which would equate high cost support to the difference between the costs of serving an area and a nationwide average revenue benchmark.⁽⁷⁾

Fourth, NTIA offers a number of refinements to the Joint Board's recommended mechanisms for providing essential services to the nation's schools and libraries. Most prominently:

The Board's proposed trigger point for giving priority to the most disadvantaged schools and libraries should be lowered.

Non-toll Internet access for rural or insular schools and libraries should be explored.

II. NTIA SUPPORTS THE JOINT BOARD'S PROPOSED DEFINITION OF THE FEDERAL UNIVERSAL SERVICE PACKAGE

NTIA strongly supports the Joint Board's tentative definition of the package of services that should be made available to all Americans -- voice grade access to the public switched network with the ability to place and receive calls; touch-tone; single party service; and access to emergency services, operator services, interexchange service, and directory assistance.⁽⁸⁾ These capabilities satisfy the criteria enumerated in the 1996 Act for determining which services and features should be included within the Federal universal service package.⁽⁹⁾ As importantly, their availability will allow subscribers to make a full range of voice telephone calls and to access the Internet and other information networks.⁽¹⁰⁾ Furthermore, as NTIA has consistently argued, this definition must be dynamic and should therefore be reviewed regularly to keep pace with changing technology and customer demand.⁽¹¹⁾

We also urge the Commission to adopt the Board's recommendations that universal service support be made available for the provision of toll blocking and toll limitation service to low-income customers and that carriers be barred from disconnecting the local telephone service of Lifeline subscribers for nonpayment of long distance charges.⁽¹²⁾ NTIA agrees that these initiatives are crucial to addressing one of the principal reasons why low-income households lack telephone service -- their inability to control long distance usage.

Because NTIA appreciates the importance of telecommunications services to small businesses and because we do not wish to restrict -- even inadvertently -- access to those services to such businesses, we do not oppose Commission adoption of the Joint Board's recommendation. At the same time, however, the Joint Board appears to understand the 1996 Act's emphasis on residential customers and has, thus, appropriately limited universal service support to single line business subscribers, who are most likely "mom and pop" or "work-at-home" customers.⁽¹³⁾

NTIA supports important aspects of the Joint Board's recommended mechanism for providing universal service support to high cost areas. Most importantly, we agree that the identification of an area as "high cost" should be based on forward-looking costs and should not be based on the costs reported by the firms serving or seeking to serve that area. As NTIA noted in our earlier reply comments, linking high cost funding with company-reported costs tends to weaken a serving firm's incentives to minimize capital and operating costs.⁽¹⁴⁾

The Joint Board recommends that the amount of high cost support should equal the difference between the costs of serving a particular area (determined by some proxy) and a nationwide average revenue per line -- defined as "the sum of the revenue generated by local, discretionary, access services and others as found appropriate divided by the number of loops served."⁽¹⁵⁾ NTIA has several reservations about this formula. First, the very notion of high cost support implies an assessment of the relative costs of providing service to different areas. Thus, including revenues in a formula to determine high cost support appears irrelevant and, therefore, inappropriate.

Moreover, although a nationwide average revenue benchmark "would encourage carriers to market and introduce new services in high cost areas,"⁽¹⁶⁾ it would also unduly burden carriers in high cost, rural areas by forcing them to provide the same services offered by firms serving (on average) more affluent, more densely populated areas, even though there are likely to be significant differences between the respective areas in terms of, for example, market demand or consumer disposable income. If lack of customer demand limits the rural carrier's ability to market new services, that carrier will face a reduction in its high cost support for the provision of basic service, through no fault of its own and for no good reason.⁽¹⁷⁾

The Board's proposed average revenue benchmark is also problematic because it includes monies derived from services, e.g., discretionary services, that are not included within the Federally-defined universal service package. If revenues are to be used in determining Federal universal service support, they ought to be limited to revenues earned in providing the services to be supported -- those contained in the basic universal service package. Relying on non-universal services to generate revenues to offset the costs of offering the universal service package appear to conflict with Congress' goal of eliminating implicit subsidies as a means of financing universal service.⁽¹⁸⁾

Because of the problems with using a revenue benchmark to calculate, in part, high cost support, NTIA recommends that the Commission classify an area as "high cost" if the costs of serving that area (as determined by some methodology exogenous to the serving firm or firms) exceed 130 percent of the nationwide average costs. In such cases, eligible companies serving those areas would be entitled to receive, for each customer served, an amount from the Federal universal service fund equal to the difference between their costs (exogenously determined) and 130 percent of the nationwide average.⁽¹⁹⁾

IV. CONTRIBUTIONS TO THE FEDERAL UNIVERSAL SERVICE FUND SHOULD BE BASED ON A FIRM'S COMBINED INTERSTATE AND INTRASTATE REVENUES

NTIA strongly supports the Joint Board's recommended approach for generating the funds needed to ensure the affordability of the Federally-defined universal service package. Thus, all providers of interstate telecommunications services should be required to contribute to the Federal universal service fund.⁽²⁰⁾ We also agree with the Board's recommendation that contributions to the Federal fund should be generated by a percentage surcharge on an obligated firm's gross revenues, minus payments to other carriers.

That surcharge should apply to a contributing firm's combined interstate and intrastate gross revenues, rather than interstate revenues alone. It must be recalled, after all, that the bulk of the Federally-defined universal service package includes services and features that have long been considered intrastate in nature and regulated accordingly. The universal availability of that service package, moreover, ostensibly benefits all users of the nation's telecommunications system, not merely those who happen to make interstate calls. If, as Congress mandated, one of the goals of universal service is to ensure "equitable and nondiscriminatory contribution[s] to the preservation and advancement of universal service,"⁽²¹⁾ the burden of supporting those universally beneficial services should not be borne solely by interstate revenues and the customers that generate them.⁽²²⁾

Furthermore, basing universal service contributions on interstate revenues alone would cause substantial compliance and enforcement problems. Service providers would have to develop mechanisms for identifying and separating interstate revenues from other revenues, increasing their costs and potentially subjecting them to accounting rules and regulations they have never faced before.⁽²³⁾ More perniciously, companies would have the incentive to mischaracterize the jurisdictional nature of their revenues to avoid or to minimize their Federal contribution.⁽²⁴⁾ The oversight problem for regulators will likely become even greater in the future if, as many expect, companies begin offering packages of interstate and intrastate communications services.⁽²⁵⁾

Finally, recovering universal service contributions entirely from interstate services would increase the price of those services (by the amount of the surcharge), thereby reducing demand and, perhaps, deterring firms from investing in interstate transmission facilities or providing interstate services. Additionally, because the elasticity of demand for interstate services is significantly higher than the demand elasticities of many intrastate services, the distorting effect on social welfare of a surcharge on interstate revenues will be substantially larger than if the surcharge were applied to a broader revenue base or to a broader range of services, the demand for some of which are less sensitive to fluctuations in price. For all of these reasons, basing Federal universal service contributions on combined revenues is desirable as a matter of policy.

Such an approach is also consistent with the intent and structure of the universal service provisions of the 1996 Act.⁽²⁶⁾ Although that Act specifies that providers of interstate communications service must contribute to the Federal universal service, it is silent about which of their revenues are subject to that obligation.⁽²⁷⁾ It has been argued that the 1996 Act did not disturb the traditional interstate/intrastate division of power between the Commission and State regulators. In fact, however, the Act effects a series of fundamental changes in Federal/State authority with respect to universal service.

Rather than leaving the definition of universal service solely to the States, as has been the case historically, the 1996 Act requires the Commission to adopt a new national definition of the services to be made universally available and affordable.⁽²⁸⁾ Congress plainly intended the Commission-adopted plan to be the nation's threshold universal service plan, because it barred States from adopting programs that interfere with the Federal plan.⁽²⁹⁾ Congress also required States to designate essential telecommunications carriers (ETCs) to provide the Federally-defined universal service package in unserved areas and forbade States from designating fewer than two ETCs in many other markets.⁽³⁰⁾

In other words, although the 1996 Act does not interfere with State prerogatives to provide additional universal service support to their citizens, it creates an explicit Federal role in crafting universal service policy to ensure a nationwide minimum level of universal service and universal service support. Because Congress gave the Commission new authority over the definition and provisioning on universal service, it is reasonable to conclude that Congress intended to give the Commission latitude to fund the Federal universal service program in a sensible and sustainable manner that promotes the larger procompetitive purposes of the 1996 Act.

Funding the Federal universal service program with a surcharge on intrastate and interstate revenues does not impair States' authority over the "charges, classifications, practices, services, facilities, or regulations for or in connection with intrastate communications."⁽³¹⁾ States retain their power to determine the rates at which carriers offer intrastate services, as well as the terms and conditions on which they make those services available.⁽³²⁾ There is, in short, nothing in either the Communications Act or the Telecommunications Act of 1996 that bars the Commission from funding universal service by a surcharge on combined interstate and intrastate revenues.⁽³³⁾ There are, as discussed above, strong policy considerations in favor of such an approach.

A. Schools and Libraries

NTIA further commends the Joint Board for its stance on schools and libraries as set forth in the Recommended Decision. As Vice President Gore observed:

I am very pleased that the FCC's Federal-State Joint Board on universal service has today unanimously voted to respond to President Clinton's call to give every classroom and library in the country affordable access to the information superhighway.⁽³⁴⁾

We are pleased that the Joint Board embraced many of the basic tenets of the Administration's E-rate plan.⁽³⁵⁾ The provision of substantial discounts for all schools and libraries, with deeper reductions for entities in low-income and/or high-cost areas, is a major step toward ensuring that all schools and libraries have access to the Information Age. We likewise applaud the Joint Board's definition of universal service for schools and libraries that includes access to the Internet and e-mail, competitive bidding as the backbone of the procurement process, and encourages buying coalitions, as well as neutrality with respect to technology and competition.

While we are encouraged that the overall framework of the Recommended Decision's approach will achieve many of the Administration's goals, we believe that any final E-rate plan adopted by the Commission should be in consonance with the following policy recommendations.

1. Technology and curriculum should be integrated

As many educators have emphasized throughout this process, educational objectives and curricula should drive the use of bandwidth, transmission speed, and functionalities. The Joint Board has addressed this concern by adopting three self-certification requirements that seem reasonable and not overly burdensome.⁽³⁶⁾ In turn, the Joint Board urges the Commission to adopt these requirements in order to demonstrate compliance with the 1996 Act's "bona fide request" clause in section 254(h)(1)(B). We concur.

In response to suggestions from the education community, the Administration has promoted four goals as set forth in the President's Technology Literacy Challenge.⁽³⁷⁾ These include ensuring that:

All teachers have the proper training and support they need to help students learn how to use computers and the information superhighway;

All teachers and students will have modern multi-media computers in their classrooms;

Every classroom will be connected to the information superhighway; and

Effective software and on-line learning resources will be an integral part of every school's curriculum.

The Administration already has begun initiatives designed to achieve these goals. One is the Department of Education's Technology Literacy Challenge Fund, which seeks to provide funds on a matching basis to states for teacher training and curriculum-based on-line learning, as well as electronic access to the NII for classrooms. Matching grants also form the basis for NTIA's Telecommunications and Information Infrastructure Assistance Program, which helps schools, libraries, and other non-profit entities to effectively access the information superhighway.

The Recommended Decision addresses the third, crucial element of this strategy. It recognizes that schools and libraries require inside as well as external connectivity to the Information Superhighway and that affordable access to the Internet is the key to broadening all children's learning. Although educational approaches may vary, many educators believe that telecommunications technologies and access to the many content-rich sources of information now available on the Internet are critical to continuing and maintaining the level of educational excellence in this country.⁽³⁸⁾ Moreover, these technologies provide comparatively inexpensive access to resources that are unavailable to or not affordable for many of our low-income, isolated and smaller schools. We urge the Commission to develop these recommendations in full.

2. Educational access to technology should be prudently supported and periodically reviewed

Technological change is occurring at a breakneck pace, with new research and learning tools for educators, students, and parents being introduced almost daily. As the Internet evolves (e.g., the emergence of Internet II), policymakers need to ensure that educational capabilities are kept current and include commercially-proven services and technologies. Such updating should be addressed by the Joint Board within a reasonable period of time, beginning at the latest with the Board's proposed re-convening on January 1, 2001 and resolved by no later than five years from now.⁽³⁹⁾

3. Schools and libraries must receive technical and informational assistance to ensure their successful participation in the new universal service support system

As a general proposition, schools and libraries will need help to take full advantage of the support system permitted by the 1996 Act and envisioned by the Joint Board. Many of these entities will find themselves inadequately prepared to make the most favorable procurement deal available to them under the new universal service framework. Integral support functions include, among others, technology assistance, electronic posting of information such as recitations of "best practices", description of service needs, and competitive bids, and facilitation of coalition buying/aggregation of demand, consistent with procurement regulations characteristic of the individual states.⁽⁴⁰⁾

To avoid the build-up of a large, costly, and self-perpetuating administrative structure, this assistance should be provided by a variety of public and private sector sources. Utilizing the knowledge base of existing organizations would be one way to provide assistance while containing costs. For example, the U.S. Department of Education currently operates six regional technology education centers (RTECs). These RTECs could play a role in helping school districts understand the range of technical options, as well as provide important information about best practices. Through its TIIAP program, NTIA also has a body of knowledge that can be usefully shared with schools and libraries, as does the U.S. Department of Agriculture through its Distance Learning Grants program.

"Start-up" entities could also contribute valuable assistance without burdening the support fund. As noted in the Recommended Decision, clearinghouses of information as proposed by Information Renaissance and others could be a boon to schools and libraries by facilitating their task of certifying their procurement and deployment plans.⁽⁴¹⁾ A universal service marketing group of a type similar to that proposed by the California PSC in 1995 or recommended in this proceeding by the Benton Foundation might also prove useful, provided it does not adversely affect the size of the fund.⁽⁴²⁾

We concur with the Joint Board that the fund administrator (which NTIA believes should be selected through a competitive bidding process)⁽⁴³⁾ should have a role in facilitating the procurement process.⁽⁴⁴⁾ As distinguished from providing technology assistance or best practices, this role should involve providing a means for disseminating service descriptions and bid proposals. One advantage of this approach would be the accumulation of data in one database that would help develop comparisons of "lowest corresponding prices" for "similarly situated" non-residential users.⁽⁴⁵⁾

In essence, multiple sources could provide the technical and informational assistance that schools and libraries will need under the new universal service mechanism, with the administrator focusing on facilitating the actual transactional (i.e., RFP and bidding) functions. All participants ought to understand that whatever system the Commission chooses for the first years of the new universal service system, there will be some features that will eventually be modified or abandoned. The workability and cost effectiveness of any initial approach can and should be refined as experience is gained.

4. State regulators should have primary responsibility for identifying similarly situated schools and libraries

According to the Recommended Decision, carriers should provide services to a school or a library at the "lowest corresponding price," that is, the lowest price charged to similarly situated non-residential customers.⁽⁴⁶⁾

This concept poses a complex challenge for purposes of implementation, as illustrated by the concerns expressed by a variety of commenters.⁽⁴⁷⁾ We believe that such a determination can best be made by the individual state public service commissions, which can make factual determinations as to the "lowest corresponding price." The fact-finding methods used can be left to each State. Ideally, school districts and libraries should know the rate to be applied and should not have to bear the burden of challenging a LEC-quoted rate. Under this approach, State commissions would make similarly-situated determinations before any prices are quoted to a school or library. NTIA finds merit in EDLINC's "volume of usage" criterion for distinguishing among non-residential users in developing broad-based "similarly situated" comparisons.⁽⁴⁸⁾ In addition, we would envision that major consultative assistance could be usefully provided to State commissions by State education departments, technology boards, or other State educational entities.

This approach is predicated on NTIA's belief that because State commissions deal with customers daily, they are in the best position to arbitrate this process and to ensure that the prices paid by schools and libraries and the amount drawn from the fund are cost efficient. It would also help ensure that schools and libraries are given the assistance they need to effectively participate in the new universal service system.

5. The Recommended Decision's discount rate structure for the most disadvantaged schools should be revised to reflect better their area cost situations

The Joint Board has properly articulated a concept whereby all schools and libraries and, especially those that are economically disadvantaged, receive substantial discounts. The Board's matrix of percentage discounts, however, does not consistently fulfill the goal of providing the greatest discounts for those with the greatest need.⁽⁴⁹⁾ More specifically, the matrix fails to accord deeper discounts for those schools in the lowest two tiers of poverty (based on participation in the free or reduced lunch program) that are also located in the highest cost areas. The poorest schools situated in the highest cost areas receive no greater discount than the poorest schools in less costly regions. Furthermore, a low income school or library in a high cost area needs an additional discount because the base prices to which discounts are applied are so much higher than the base prices in lower cost areas. This should be remedied by modifying the two lowest income tiers (varying by area cost) as follows:

low cost mid-cost highest cost

75% 80% 85%

85% 90% 95%

6. A sound basis for discounting rates must be developed for libraries and private schools

As pointed out by numerous parties,⁽⁵⁰⁾ a systematic means to develop special rates for libraries must be adopted. In terms of a taxonomy based on area costs, libraries should be classified in the same manner as schools. Thus, a "high cost" designation for a school in a given census-based area would also apply to a library. In relation to low-income designations, a given library should be categorized in the same way as the nearest school on the presumption that entities residing in the same area should be like classified. We agree with the American Library Association that U.S. Census data should be examined to determine the most needy areas, and we await the outcome of ALA's ongoing study of libraries in rural and economically disadvantaged areas for the insights it should bring to this proceeding.⁽⁵¹⁾ Based on the best available empirical data, states ought to be responsible for certifying these areas for purposes of determining eligibility for the appropriate discounts.

Regarding private schools, classification in terms of high cost support presumably could follow the approach just discussed, that is, private schools in high cost areas must receive high cost discounts. With respect to discounts based on income, the scheme for private schools is, admittedly, more difficult to craft than for their public counterparts. In many cases, private schools do not have the capacity to apply for participation in the free or reduced price lunch program, thereby negating the usefulness of a scheme based on actual subscription. Eligibility for such programs could be used as a surrogate for private schools, however. This approach is attractive because it would be simple to administer, uses an existing and universally accepted basis (the free or reduced price lunch program), and would be equitable. Once eligibility is ascertained, a count would have to be made to calculate the actual number of students affected for a given private school.

7. The Commission must address the applicability of discounted rates and other aspects of the new universal service policy with respect to this nation's tribes

It is our belief that the needs of our Native American tribes require further attention. We agree with the Cheyenne River Sioux Telephone Company that the Commission should strive to ensure that the 187 schools established under tribal authority receive discounted rates, at least comparable to those provided to other disadvantaged communities.⁽⁵²⁾ Telecommunications technology can help to reduce many of the disparities facing the more than 550 tribes, including geographic isolation and significantly higher rates of unemployment, poverty, and high school dropouts. Therefore, we believe that closer examination by the Commission of universal service policies and general telecommunications regulations, as they affect tribes, is warranted in order to ensure that no community in need is left behind.

8. The Joint Board's recommended level of support is not unreasonable

There is no track record for any universal support fund for schools and libraries, so claims that the funding level has been "set too high" have no basis in fact. The level appears to be reasonable, given the goals set by Congress in section 254(h)(1)(b). The Board appropriately recommended that the level be reviewed in the year 2001.⁽⁵³⁾

9. The Recommended Decision's current trigger point for giving priorities to the most disadvantaged schools and libraries should be lowered and coupled with regular monitoring of the fund

The primary goal for public policymakers in this context should be that every school and library can achieve a basic electronic capability that will assure universal access to the tools of the Information Age.⁽⁵⁴⁾ One substantial concern that the Joint Board mechanism raises is the recommended level of the trigger.⁽⁵⁵⁾ Under the Board's plan, "rules of priority" favoring economically disadvantaged schools and libraries would be invoked once the $2 billion level is attained.⁽⁵⁶⁾ This would leave $.25 billion for the remaining poorest entities (determined on the basis of student participation in the free or reduced lunch program). In schools where student participation in the lunch program equals 50 percent or more, almost one-third of all public schools might not benefit from the fund. If a broader definition of economically disadvantaged is used, the proportion of schools that the trigger level would need to accommodate could approach half of all public schools.⁽⁵⁷⁾

Because the poorest schools have less access to information or a paucity of expertise, they may be less able to take advantage of available discounts than their wealthier counterparts. This inherent disadvantage, coupled with the fact that the most disadvantaged schools and libraries are a significant segment of the total, the Recommended Decision's trigger is set too high to effectively address the needs of schools and libraries that have not yet utilized the fund.

Clearly, a more realistic trigger is needed, and we would recommend a trip-point no higher than $1.5 billion initially. To provide greater protection, the fund administrator should also continously monitor the dispersion of funds to ensure that funds are being distributed equitably at all points in the funding cycle. This will help ensure that serious funding disparities can be identified and remedied before the trigger point is reached. This approach should not create a burden because this data should be available on an on-going basis from the fund administrator.

10. Non-toll Internet access for rural or insular schools or libraries should be explored

We have consistently embraced equitable access as a core principle of universal service and believe that it should be applied specifically to ensure Internet access for those entities that are now inequitably constrained by metered service. The Joint Board's recommendation to permit all schools and libraries to receive substantial discounts on Internet access -- indeed, all telecommunications services -- represents an important action to help these institutions better able to afford this crucial capability. However, the disparity -- albeit at a lower level -- would remain. Moreover, this recommendation would not directly benefit others, such as households, for which the inequity would still obtain.

Accordingly, we would recommend that where interstate toll is involved with respect to accessing the Internet, the FCC should mitigate the disadvantage. Where the toll link is intrastate in nature, we would urge the individual states to seriously consider ameliorating the toll-charge effect. This should be accomplished through appropriate competition-neutral measures, e.g., where necessary through Federal or state universal service funding, respectively, or -- ideally -- through the entrepreneurial creativity of competing providers.

B. Health Care Providers

In an attempt to assist the Joint Board and the FCC with respect to telemedicine issues, we submitted the data collected as a result of a special Telecommunications and Information Infrastructure Assistance Program survey of several rural telemedicine grantees as comments in CC Docket No. 96-45 on December 19, 1996. We have subsequently examined the raw data to identify any meaningful trends or patterns that would be useful to the Commission. These findings, based on a survey of several TIIAP grant recipients, are presented below in summary form and appear in greater detail in the attached Appendix.

Participants in the survey have telemedicine networks that serve rural areas.

A diverse group comprised of private networks, carriers, and cable companies provide the transmission facilities used for telemedicine services.

Survey respondents currently utilize a variety of bandwidths. None apparently exceeds 1.544 Mbps, the threshold that the FCC's Advisory Committee on Telecommunications and Health Care concluded would be sufficient to support a wide range of telemedicine-related activities.

Respondents generally believe that they could not reduce the bandwidths that they currently use without harming the effectiveness of health care delivery. Most also agree that use of higher bandwidth would enhance telemedicine care.

Monthly and non-recurring charges for telemedicine-related transmission services vary among respondents.

Wide-ranging network applications reflect the differing needs of those in the telemedicine field.

Most respondents subscribe to e-mail and have Internet access, usually without toll charges.

A general conclusion to the results obtained from this small sample group is that these rural telemedicine and telehealth care providers do not have homogeneous needs or requirements. The uses of their networks are diverse, as is their bandwidth requirements for the transmission facilities. As evident in the results obtained from the survey, the recurring and non-recurring monthly charges for the transmission facilities required to transmit video, voice, and data over their networks varied significantly.⁽⁵⁸⁾

Accordingly, these findings should cause policy makers to eschew "one size fits all" policy prescriptions unless compelling reasons warrant a different conclusion. One option that the Commission may want to consider is to allow a particular discounted rate on all recurring and non-recurring charges by telecommunications providers for any level of bandwidth utilized by rural medical entities for the purpose of telemedicine. In selecting the specific percentage of discount -- or matrix of percentages, if tiers are desired to reflect degrees of economic disadvantage analogous to schools and libraries -- the Commission in consultation with the Joint Board should consider such factors, inter alia, as urban-rural "reasonable comparability" (as directed by the Act) and estimated impact on the universal service fund. Another option would be to determine incentives that would aid the diffusion and advancement of telemedicine. For example, policymakers at various levels of government could take actions to encourage users to form buying consortia, which would tend to further reduce health care costs and make more advanced capabilities more affordable.

VI. CONCLUSION

For the foregoing reasons, NTIA respectfully requests that the Commission adopt the modification to the Joint Board's Recommended Decision contained herein.

Respectfully submitted,

Larry Irving    				
Assistant Secretary for			Barbara S. Wellbery
 Communications & Information		Chief Counsel


Shirl Kinney			
Deputy Assistant Secretary		

							Cathleen K. Wasilewski
							Counsel

Kathryn C. Brown		   	                  
  Associate Administrator		        

Mark Bykowsky
Norma Fleischman
James McConnaughey
Tim Sloan

Office of Policy Analysis
 and Development

Stephen Downs
Shari Wyatt

Office of Telecommunications and
 Information Applications

Roanne Robinson
Office of the Assistant Secretary

							National Telecommunications
							and Information Administration	

U.S. Department of Commerce
Room 4713
14th Street and Constitution Ave., N.W.
Washington, D.C.  20230
202) 482-1816
								January 10, 1997

APPENDIX

Survey of Rural Telemedicine TIIAP Grantees

The following represents the findings of an informal survey

conducted with several Telecommunications and Information Infrastructure Assistance Program (TIIAP) grant recipients during December 9-17, 1996.

o Participants in the survey have telemedicine networks that serve rural areas.

Ninety percent of the TIIAP grant recipients who participated in the survey have telemedicine networks located, on average, approximately 100 miles from a city with a population equal to or greater than 5000.

o A diverse group comprised of private networks, carriers, and cable companies provide the transmission facilities used for telemedicine services.

The findings show that these telemedicine networks utilize a variety of private networks, independent carriers, local exchange carriers, interexchange carriers, and cable companies for the transmission facilities required for the delivery of the health care services.

o Survey respondents currently utilize a variety of bandwidths. None apparently exceeds 1.544 Mbps, the threshold that the FCC's Advisory Committee on Telecommunications and Health Care concluded would be sufficient to support a wide range of telemedicine-related activities.

The survey reveals that under current conditions, telemedicine users utilize bandwidths of 1.544 Mbps or less. Grantees cited use of dedicated, multiplexed, or fractional 1.544 Mbps transmission facilities. ISDN circuits and the utilization of frame relay services were also noted.

o Respondents generally believe that they could not reduce the bandwidths that they currently use without harming the effectiveness of health care delivery. Most also agree that use of higher bandwidth would enhance telemedicine care.

The findings regarding the possibility of whether their services could be provided at a lower bandwidth seemed to show that recipients noted minimum transmission standards that they have determined acceptable for the uses required by their network. Most of the comments from the grant recipients stated that reducing the bandwidth of their current networks was unacceptable and would not be adequate for their needs. Most grant recipients seemed to agree that if that higher bandwidth were available for their networks, the results would be positive for the telemedicine industry.

o Monthly and non-recurring charges for telemedicine-related transmission services vary among respondents.

The findings show that while the level of telecommunications services varied among grant recipients, the monthly and installation costs of the services also differed. Obvious conclusions are that these monthly recurring and non-recurring charges may vary according to such factors as the bandwidth being utilized, the number of sites participating in the network, the distances, the mechanism by which the carrier prices out the service, and whether or not a discount is applied to the tariff.

o Wide-ranging network applications reflect the differing needs of those in the telemedicine field.

From the responses obtained regarding the uses of telecommunications in the delivery of health care, the findings showed that the applications for the networks vary from real-time interactive video consultation for cardiology, dermatology, speech pathology, psychiatry, to e-mail, continuing medical education courses, and emergency and trauma, etc. One of the factors which may contribute to the wide variety of network usages is that the needs of the community members, medical entities, and organizations involved in the project differ.

o Most respondents subscribe to e-mail and have Internet access, usually without toll charges.

In terms of e-mail, the findings of the survey show that 80 percent of the recipients have e-mail. The finding also show that 70 percent of the recipients have Internet access. Only 20 percent of the recipients stated that their organizations incurred long-distance charges for Internet access. The limited number of responses to the question regarding the number of hours of Internet use proved inconclusive.

FOOTNOTES

1. Federal-State Joint Board on Universal Service, Recommended Decision, CC Docket No. 96-45, FCC 96J-3 (released Nov. 8, 1996) (hereinafter Recommended Decision). Unless otherwise indicated, all subsequent citations to "Comments" shall refer to pleadings filed on December 16, 1996 in CC Docket No. 96-45.

2. Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (codified at 47 U.S.C. 151 et seq.) (hereinafter 1996 Act). For convenience, all references to the 1996 Act in this pleading will cite to the section numbers that will apply after the Act's provisions have been codified in the United States Code.

3. Reply Comments of the National Telecommunications and Information Administration, Amendment of The Commission's Rules and Regulation To Increases Subscribership and Usage of the Public Switched Network, CC Docket No. 95-115, at 7 (filed Mar. 29, 1996).

4. See Recommended Decision 110.

5. Id. 91-92.

6. The Commission should continue to explore the feasibility of using competitive bidding to determine the appropriate level of universal service support in high cost areas.

7. See Recommended Decision 311-313.

8. See id. 4.

9. 1996 Act 254(c)(1)(A)-(D).

10. See Reply Comments of the National Telecommunications and Information Administration, Federal-State Joint Board on Universal Service, CC Docket No. 96-45, at 7 (filed June 12, 1996) (hereinafter NTIA Reply Comments).

11. See 1996 Act 254(c)(2). See also id. 706(a) (requiring the Federal and State regulators to encourage deployment of advanced telecommunications capabilities to all Americans).

12. Recommended Decision 384-387. We nonetheless agree that carriers ought to be able to disconnect local service for nonpayment of long distance charges if a low-income household does not agree to subscribe to a toll restriction or toll limitation service (made available at a subsidized rate). See, e.g., Comments of Ameritech at 14.

NTIA did not support, as the Joint Board suggests, making caller ID services available to low-income households at reduced rates. Recommended Decision 393. Rather, we favored including within the Federally-defined universal service package certain privacy protections, such as the ability for telephone subscribers to block the passage of their telephone numbers on outgoing calls. See NTIA Reply Comments, supra note 10, at 7. We urge the Commission to adopt this recommendation.

13. See, e.g., 1996 Act 254(c)(1)(B). In deciding whether to include a service or feature in the Federally-defined universal service package, the Commission should consider whether that feature or service has "been subscribed to by a substantial majority of residential customers."

14. NTIA Reply Comments, supra note 10, at 16. NTIA will continue to evaluate the suitability of various "proxy" models for estimating service costs as the discussions about those models move forward.

15. Recommended Decision 310 (footnotes omitted). "Discretionary services include services that are added on to basic local service, e.g., call waiting, call forwarding or caller ID." Id. 310 n.1002.

16. Id. 313. We also recognize that a rational firm should have an incentive to introduce new services without such prompting if the offering of such services would increase firm profits.

17. See id. ("those carriers that fail to introduce services or who lose customers to their competitors will not receive universal service support funds to replace the foregone revenues"). If the Commission decides to use an average revenue benchmark for determining high cost support, it could mitigate potential unfairness to high cost carriers by employing a geographically narrower benchmark, such as statewide average revenues per line.

18. See, e.g., H.R. Conf. Rep. No. 104-458, 104th Cong., 2d Sess. (1996), reprinted in 1996 U.S.C.C.A.N. 124, 131 (hereinafter Conference Report). See also Comments of US West, Inc. at 29-30.

19. See NTIA Reply Comments, supra note 10, at 18-19. Under this approach, if average service costs nationwide are $30 per line per month, the Federal universal service fund would provide high cost support to all areas where service costs exceed $39 per line per month.

Some may argue that a Federal high cost support program that focuses exclusively on relative costs may not guarantee affordable rates in high cost areas. In NTIA's view, affordability can best be assured -- in low cost and high cost areas alike -- by identifying the specific households that need help in paying for adequate telephone service and targeting support to those households. See id. at 18 n.51. States are also free to ensure affordability by providing additional support to high cost areas through separate, independently-funded State programs. Id. at 19. See also 1996 Act 254(f).

20. Recommended Decision 784-791.

21. 1996 Act 254(b)(4).

22. NTIA agrees with MCI that, if the Commission decides to finance the Federal universal service fund solely from interstate revenues, the Commission should substantially reduce the size of that fund and leave it to the States to establish supplementary universal service support funds financed by intrastate revenues. See Comments of MCI Telecommunications Corp. at 8.

23. Recommended Decision 816. In some cases, firms may find it simpler to incur the costs of corporate reorganization to separate structurally their provision of interstate and intrastate services. Staff Subcommittee on Communications of the National Association of Regulatory Utility Commissioners, The Revenue Base for Federal Universal Service Support 25 (Dec. 8, 1996) (hereinafter NARUC Staff Report).

24. Recommended Decision 816; NARUC Staff Report, supra note 23, at 25.

25. See Comments of MCI Telecommunications Corp. at 11.

26. See, e.g., Comments of US West, Inc. at 16-21.

27. 1996 Act 254(d). See also Conference Report, supra note 18, at 131.

28. 1996 Act 254(a)(2). In so doing the Commission must, of course, consult with State regulators via a Federal-State Joint Board.

29. Id. 254(f).

30. Id. 214(e)(3).

31. 47 U.S.C. 152(b).

32. See NARUC Staff Report, supra note 23, at 22 ("[t]here may be a difference between the setting of intrastate rates and conditions of service, which can only be accomplished by the states, and the collection of funds to finance universal service programs").

33. By the same token, if a State wishes to establish its own universal service program, the 1996 Act would not preclude it from funding such a program by imposing a surcharge on all revenues earned by contributing firms within that State. The important difference is that while the Commission can reach all domestic revenues to fund a universal service program for the entire country, the State of Iowa, for example, should be limited to the revenues generated by communications that originate in Iowa.

34. Statement of Vice President Gore, released November 7, 1996, at 1.

35. Further Comments of the National Telecommunications and Information Administration, Federal-State Joint Board on Universal Service, CC Docket No. 96-45 (filed Oct. 10, 1996) (hereinafter NTIA Further Comments).

36. These requirements include: (1) certify to the administrator that they have adopted a plan for securing access to all of the necessary supporting technologies needed to effectively use the services purchased under 254(h) of the 1996 Act; (2) send a description of the services they desire to the fund administrator, so that the description of services can be posted for all potential competing service providers; and (3) submit written requests to their chosen service providers for services eligible for 254(h) discounts, including certification of their eligibility for support and agreement to abide by FCC rules. See Recommended Decision 599-604, 630.

37. See, e.g., U.S. Department of Education, Getting America's Students Ready for the 21st Century: Meeting the Technology Literacy Challenge at 5, 11.

38. Recent empirical studies show that when prudently applied, technology -- including Internet access -- leads to important performance gains for students. For example, the Center for Applied Special Technology (CAST) found in a study of 500 elementary school students in seven urban school districts that the Internet can help students become independent critical thinkers. CAST, The Role of Online Communications in Schools: A National Study, 1996. More broadly, a Stanford Research Institute study funded by the Department of Education concluded that the use of technology results in educational gains regardless of age, race, parental income or other factors. Barbara Means and Kerry Olson, Restructuring Schools with Technology: Challenges and Strategies (Menlo Park, CA: SRI International, November 1995).

39. See 1996 Act 254(c)(1).

40. The National Association of State Telecommunications Directors (NASTD) urges the Commission to consult with state and local officials before designing an electronic posting system for service descriptions to ensure that procurement codes in the various jurisdictions are not violated. Comments of NASTD at 4, 5. Moreover, we support the Joint Board's endorsement of aggregating demand among consortia as an important means for these institutions to secure discounts as permitted under the Board's plan. See Recommended Decision 593-596.

41. Recommended Decision 599-602.

42. See Comments of the Benton Foundation at 3, 4, 5, n.8. See also California Public Service Commission, Decision 96-10-066: Investigation on the Commission's Own Motion into Universal Service and to Comply with the Mandates of Assembly Bill 3643 (Oct. 25, 1996).

43. See NTIA Reply Comments, supra note 35, at 29.

44. Alternatively, an entity other than the administrator could be chosen to perform this function. Another possibility would be for the administrator to subcontract this function to qualified entities, although the administrator would still be responsible for selection of the subcontractor and overall accountability for the process. Key considerations for whichever entity is selected would be, inter alia, its independence and neutrality, as well as its demonstrated competence.

45. See discussion infra. Any comparisons would be made in compliance with applicable Federal and state laws and regulations.

46. Recommended Decision 540-541.

47. See, e.g. Comments of the American Library Association at 13-14; Comments of the Brooklyn Public Library at 6-7; Comments of Pacific Telesis Group at 48-50; Comments of the United States Telephone Association at 37-39.

48. EDLINC Comments at 8-9.

49. Recommended Decision 555.

50. See, e.g., Comments of Winstar Communications, Inc, at 11-12; Comments of United States Telephone Association at 37-38; Comments of Pacific Telesis Group at 48-49.

51. Comments of the American Library Association at 3, 8, 9.

52. The Bureau of Indian Affairs (BIA) funds 187 schools. Of that total, 82 are operated by the BIA and the remainder are grant schools, funded by the BIA but operated by the tribe or tribal organization. The 187 figure is largely reflected in the statistics provided to the Joint Board by the Department of Education regarding the total number of K-12 schools. There may currently be other schools established by tribes or tribal organizations above and beyond the 187 BIA-funded schools that also should be eligible for discounts.

53. Recommended Decision 556.

54. See NTIA Further Comments, supra note 35, at 1-9. See also 47 U.S.C. 706 (requiring Federal and State regulators to encourage deployment of advanced telecommunications capabilities on a reasonable and timely basis to all Americans, and to classrooms in particular).

55. See Comments of BellSouth Corporation at 35-37. See generally Comments of NYNEX at 37-39; Comments of Citizens for a Sound Economy at 11-12.

56. Recommended Decision 556.

57. Source: U.S. Department of Education.

58. See Appendix. See also Comments of the National Telecommunications and Information Administration to the Public Notice issued by the FCC on November 18, 1996 in CC Docket No. 96-45 (filed December 19, 1996).