National Telecommunications and Information Administration
• Asst. Secretary
• Domestic Policy
• Telecom Research
Media & Press
Dept. of Commerce
Universal Service: A User's Guide
May 8, 1997, the Federal Communications Commission (FCC)
issued a landmark decision regarding universal service
-- the availability and affordability of telecommunications
service for all Americans. In February 1996, Congress
working with the Administration and a variety of public
and private sector parties adopted for the first time
since 1934 comprehensive legislation that establishes
a policy making framework for the emerging Information
Focusing on the universal service provisions of the 1996 Telecommunications Act, the FCC issued rules based on the following four goals:
(i.e, services that will be supported by the fund):
MAIN POINTS OF THE FCC's MAY 8 DECISION:
Traditionally, universal service has been achieved primarily through implicit subsidies designed to shift costs from rural to urban areas, residential to business customers, and local to long distance service. Some explicit support mechanisms have been employed in high cost areas and for low-income users. Through changes in universal service funding and interstate "access charges" (i.e., the payments made by long distance telephone companies for use of local exchange carrier facilities), the FCC will convert existing Federal support to an explicit, competitively neutral, and sustainable mechanism during 1999. The total amount of support will not decline materially but will be restructured to better fit a competitive environment.
The "Lifeline Assistance"program, which is designed to mitigate the cost of monthly phone bills, must now be offered to qualifying low income consumers by all eligible telecommunications carriers. In addition, all states must provide this service to its consumers.
Amount of support
Lifeline participants will now receive an extra $1.75 a month over the $3.50 that Lifeline currently contributes, totaling $5.25 in federal "interstate" support even if the state provides no funds (from the "intrastate" jurisdiction). In addition, Lifeline will provide matching funds equal to half of the funds generated from the intrastate jurisdiction, up to $7.00 a month in federal support. If a state provides the minimum amount ($3.50 per month) required to elicit the full federal support (i.e., $5.25 plus $1.75 in one-for-two matching funds), the total monthly Lifeline contribution to a reduction in end user charges could rise from $7.00 under the current system to $10.50 under this new regime.
In addition to services that meet the definition of "universal service," Lifeline customers are also allowed to receive toll limitation service free of charge in areas in which this capability is offered. That means that a monthly limit can be set on the amount of money spent on long distance calling, and if the long distance bills are not paid, then only the long distance service, and not the local service, would be cut off until the long distance bill is paid.
These new Lifeline programs are scheduled to go into effect on January 1, 1998.
In states that provide intrastate support, the eligibility for Lifeline is currently determined by state agencies or telephone companies; this will continue. In states that do not provide intrastate support, however, the default Lifeline eligibility standard will be participation in Medicaid, food stamps, Supplementary Social Security Income, federal public housing assistance or Section 8, or Low Income Home Energy Assistance Program. States may choose other criteria, but they must be based solely upon the income of the candidates.
These qualifications also apply to "Link-Up America," the federal program designed to support the installation of phone lines in homes.
Under the 1996 Telecommunications Act, schools and libraries are now eligible for discounts applicable to three broad categories of offerings. First, these institutions can procure any telecommunications service on a subsidized basis. Second, support is available for Internet access. Finally, these discounts can apply to internal networking that is necessary to connect school or library terminals to the Internet. The discounts also cover expenditures for networking hubs, routers, network file servers and server software, and maintenance of network systems. Personal computers, fax machines, modems, and asbestos removal, however, are specifically excluded. Training, non-network software, voice mail or information services in general, electrical connections, and security are also not eligible for discounts.
To receive a discount, schools and libraries must seek competitive bids for the eligible services. Price should be the primary factor in accepting a bid, but other factors may be included such as prior experience, personnel qualifications, management capability and environmental objectives. However, during the start-up period, a special rule will apply. For any contract that a school or library signs after November 8, 1996 and before the new competitive bidding system is operational, no such bidding is required if the contract covers only telecommunications services provided before December 31, 1998.
The subsidy for authorized services and equipment will be based upon whether the school or library is located in a rural or high-cost area as well as the percent of students in the district who are eligible for the national school lunch program, which provides free or reduced cost lunches for needy students. Similarly, a library's level of poverty should be calculated on the basis of school lunch eligibility in the public school district in which the library is located. The matrix of discounts developed by the FCC based on the school lunch program and the rural/urban nature of a given school or library appears below.
At the federal level, universal support for schools and libraries is capped at $2.25 billion per year. Funds will be allocated on a first-come, first-served basis, until there is $250 million left in the fund, at which point those schools and libraries that are most economically disadvantaged will be provided funds before others. If the annual cap is not reached in a given year, the unspent funds will be available to support discounts in subsequent years.
If schools or libraries have entered into multi-year contracts for supported services or equipment, subsidies can only be applied on a year-to-year basis and not provided in one lump sum at the beginning or the end of the contract. If a multi-year contract has already been entered into, subsidies are only available for contract payments and services in future years.
All K-12 schools, whether public or private, that operate as a not-for-profit business and have an endowment of $50 million or less, are eligible for subsidies. Eligible libraries are as defined in the Library Services and Technology Act, as is "library consortium" with the exception of "international cooperative association of library entities."
To receive subsidies, schools and libraries must do the following:
The subsidy will be paid directly to the service provider who will then supply the services or equipment to the school or library at the discounted rate.
For the first year of the program, applications for discounted services will be accepted as soon as the fund administrator's web site is operational and application forms become available later this year.
Funding support will begin to flow on January 1, 1998, and only services provided to schools and libraries after that date will be eligible for universal service discounts.
Under these new FCC rules, health care providers are eligible for universal service support for purchasing up to 1.544 Mbps of bandwidth (e.g., T-1 service). This bandwidth may be achieved through any combination of frame relay, ISDN, satellite or other services whose sum does not exceed 1.544 Mbps. Subsidies will also be provided for any "toll" (long distance) charges that might be incurred by connecting with an Internet service provider who is located outside of the local calling area. As with schools and libraries, customer premises equipment such as computers and modems will not be supported.
The subsidy will be calculated on the basis of the "standard urban distance"--that is, the average of the longest diameters of all the cities of a population of 50,000 or more within the state.
Where a rural health care provider requests a service to be provided over a distance that is less than or equal to the standard urban distance for its state, the rate paid by the rural health care provider will be the same as or less than that paid by an urban customer located in the nearest large city in the state who buys a similar service over the same distance as the rural health care provider.
If the rural health care provider needs a service to be provided over a distance greater than the standard urban distance, then the rate paid by the rural provider will be equal to or less than the highest tariffed or publicly available charge to an urban commercial customer for a similar service provided over the standard urban distance in the nearest large city in the state.
Health care providers are required to seek competitive bids for all eligible services by submitting bona fide requests for services to the fund administrator. The requests shall be posted on the administrator's website and contain information sufficient to identify the requester and the services requested. The health care provider shall certify that the service chosen is the most cost-effective service available once a telecommunications carrier is selected. The health care provider need not select the lowest bid and may take other considerations into account, but must submit copies of non-chosen responses to the Administrator.
To be eligible for these subsidies, the health care provider must be public or non-profit and located in a rural area. More specifically, eligible providers include:
There is a $400 million annual cap on the amount of support given to rural health care providers. Collection and distribution of funding will begin in January 1998.
Support will be provided on a first-come, first-served basis with the funding requests normally accepted in July before each calendar funding year. In 1997, the timing of the first requests for funding will be a function of the development of an application process for universal service support.
Health care providers must file their contracts with the administrator either electronically or by paper. Health care providers are required to file new funding requests for each new year.
Multi-year contracts will be supported on a year-to-year basis, with no lump sum funding permitted.
Eligible health care providers participating in consortia that include (ineligible) private sector members would generally not receive universal service support. The one permitted exception: eligibility would be recognized only if the consortium is receiving tariffed rates, or market rates from those carriers who do not file tariffs.
When petitioning for support, all rural health care providers must give a statement to the carrier, signed by an officer of the health care provider who is authorized to order telecommunications services, that certifies the following under oath:
Health care providers must renew their certification annually.
Similar to support for schools and libraries, the subsidy will be paid to the provider of communication services, who will then provide those services at a discounted rate.
Health care providers who cannot obtain toll-free access to an Internet service provider may obtain either 30 hours of toll-free access or $180 of toll credits (whichever is reached first). Such support can be used to fund toll charges but not distance-sensitive charges for a dedicated connection to an Internet service provider.
For more information:
• FCC's Universal Service FAQ
• US Department of Education Technology Initiatives
• Other Universal Service Information
• Office of Policy Analysis and Development