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

1. INTRODUCTION

The American Library Association (ALA) respectfully submits these Reply Comments to elaborate on and clarify points that have been raised previously in our comments and those of the other filers regarding the above referenced proceeding. In its original set of comments, filed April 10, 1996, ALA proposed that the Federal-State Joint Board on Universal Service make the following recommendations:

* That the definition of discounted special services for libraries and schools include all telecommunications services available commercially by tariff or through contract.

* That particular attention be given to support high bandwidth, interactive applications in libraries and schools.

* That the discount rates for telecommunications services be the lower of either 1) the lowest price offered to any customer or 2) a wholesale price or fair cost price that would be based on the service's total long run incremental cost.

* That additional discount support be made available for libraries in rural, insular, and other high cost areas as well as in low income areas.

* That the definition of core universal services support convenient and reliable residential access to networks such as the Internet and other online services and that libraries and schools be eligible for support for core services.

* That certification and eligibility requirements be efficient, provide accountability, and include libraries and schools that participate in cooperative network arrangements.

In its reply ALA wishes to focus on the following areas.

2. The definition of discounted services for libraries and schools should include all telecommunications services available commercially by tariff or through contract.

ALA is in agreement with Ameritech's position with regard to a definition of special services that is determined by the marketplace. ALA proposed in its original comments that any telecommunications service offered commercially through tariff or by contract should be made available to libraries and schools at a discounted rate. Ameritech noted in its filing that "different libraries and schools undoubtedly will want different functionalities."[1] Libraries certainly differ along many dimensions. At present, 44.6% of public library systems[2] are connected to the Internet.[3] Libraries also serve a variety of communities throughout the United States. Of the 15,893 public library facilities in the United States, approximately 52% serve areas that are outside metropolitan areas.[4] Libraries are at different points on the technology curve and serve different types of communities. They should not be precluded from using the telecommunications services that are best suited to their needs.

Furthermore, by making any commercially available service eligible for discounts, the regulatory burden of having hearings and proceeding on what services should be defined as special services is avoided. This is important given that an additional 22.16% of public library systems, nearly 2000 library systems, plan to connect to the Internet within the next 12 months.[5]

3. The discount rate for libraries and schools should be the lower of the total service long run incremental cost for the service or the lowest price offered commercially.

Figure 1 above demonstrates how discounts for libraries and schools would be implemented. The discounted price offered to all libraries and schools for any commercially available telecommunications service should be the floor price for that service, equivalent to the total service long run incremental cost (TSLRIC), or the lowest commercial price offered by the provider (e.g. a promotional price), if lower. Typically, the discount price for libraries and schools in most areas would likely be set at the TSLRIC for the service. In either case, no support would be needed from a universal service fund (USF). In rural, insular, and other high cost (RIHC) areas the high cost area TSLRIC might be prohibitively high in which case USF support would be used to bring the actual price paid down to the typical or average TSLRIC rate for low cost areas. In areas of low income, where even a typical TSLRIC rate might price service out of the reach of local libraries and schools, USF support would be used to make service affordable.

Under normal market conditions, the range of prices a telecommunications service provider would offer for a given service would fall somewhere between the market price, which is the maximum price the provider could charge and still make a sale, and the floor price, which is the minimum price a provider could charge and still cover the total cost of the service. This minimum price is the total service long run incremental cost (TSLRIC) of the offered service. In any market, there will exist a prevailing or equilibrium market price. In a truly competitive market where there are many sellers of a service, the market price should be close to or at the TSLRIC price.

3.1 The total service long run incremental cost is a fair discount price.

The true economic costs of supply for any market sector have been found to be the provider's TSLRIC.[6] These are the costs the firm would incur using the current least cost technology and operating methods available for service provisioning. In some cases, the "current least cost technology" is actually technology that is presently being employed. Appendix A is an example from New England Telephone, a subsidiary of NYNEX, which shows a TSLRIC calculation. On page 6 of the appendix, NET "determined from its cost records the actual cost and capacity of each component within the cost area" for calculating the local loop costs associated with providing service. In a recent tariff adjustment proceeding involving U.S. West, the Washington Utilities and Transportation Commission ruled:

The Commission finds, consistent with the presentations of most parties that addressed cost issues, that the appropriate measure of costs is Total Service Long Run Incremental Cost (TSLRIC). The Commission has found this measure of costs to be appropriate in prior cases. Incremental costs are appropriate because they measure the additional costs that are incurred by providing an additional service. TSLRIC therefore represents the economic price floor.[7]

This methodology has been widely supported, e.g. by state commissions, telecommunications companies, and internationally. A sampling of these entities is provided in Appendix B.

The TSLRIC costs for a service are costs that would be avoided if the firm withdrew from offering the service. TSLRIC figures include the opportunity cost or return that would be earned on the funds or capital that must be committed by the decision to provide service. As long as the market price is equal to or greater than a firm's TSLRIC, that supplier is doing at least as well in offering the service in the given market sector as it could do in its next best supply alternative.

TSLRIC acts as a pricing floor for the firm. If the prevailing rate falls below this level, a carrier would be economically irrational to continue to offer service, unless it were somehow compensated for the difference between what users are currently paying for service and TSLRIC. Such compensation could be furnished by governmental mechanisms. For instance, if all suppliers had to contribute to a universal service fund (USF) mechanism, e.g., as a proportion of their total revenues, then some services could be priced below TSLRIC without disadvantaging the designated provider competitively. Where market price is above TSLRIC, a supplier can utilize the difference or net revenues generated in this service sector to cover a portion of the firm's shared and common (SAC) costs. These costs are distinguishable from TSLRIC in that they would not be avoided by discontinuing service.

In some situations a firm will have good reason to offer some of its customers a price that is lower than the prevailing market rate. It may do so for promotional reasons, in order to meet the price of a new entrant or to "tie-up" a major user's business by contract for many years because of volume considerations, or for strategic reasons. These include stimulated customer usage or market growth and the lower unit costs that it would accrue thereby, as well as the expected increase in the use of corollary, higher margin services that the firm is offering.

Telecommunications providers would receive the benefits of stimulated customer usage and enhanced market growth while recovering the full cost of providing services to schools or libraries. Under the ALA proposal, usually, telecommunications providers will be recovering their full cost without the need of additional support from a USF. This eliminates the need for a large USF, (and supporting administrative structure) and frees up funds, e.g. for investment, that telecommunications providers might have to otherwise contribute to a USF.

At the same time, by providing services at the TSLRIC rate, more resources are available for libraries and schools to devote to other needed infrastructure components such as equipment, software, ongoing operational support, and training. In 1993, over 40% of library systems had annual operating expenditures of less that $50,000, and over 54% of library systems had annual operating expenditures of less than $100,000. Only 9.6% of library systems had annual operating expenditures in excess of $1,000,000.[8] By freeing up resources for other infrastructure components, the introduction and availability of the information superhighway to the public can be accelerated. The use of TSLRIC as the basis for school and library discounts provides a "win-win" situation for both telecommunications providers and the public.

3.2 ALA suggests how to implement discount prices for libraries and schools.

Referring back to Figure 1, in non high cost areas, typically, the provider would be required to offer a discount price equivalent to the floor price. Using TSLRIC to calculate the floor price would ensure that the provider recovers its full cost, including the cost of capital. The provider would be required to certify that the discount price offered was indeed the lower of the TSLRIC price or the lowest price offered commercially.

In rural, insular, or high cost (RIHC) areas, the provider would offer its best price for a service, again the lower of either the TSLRIC price or the lowest price offered by the provider. Assuming that the provider's best price is their TSLRIC price, it would be compared to the average TSLRIC price for that service offered to libraries and schools in low cost areas. If the best price was above this average, the difference would be made up from a USF. This would promote equalization between low cost and high cost areas.

In low income areas, where even the typical TSLRIC price may still be out of the reach of libraries and schools, USF support can be provided to make up the difference between the TSLRIC price and the amount that is affordable by the local school or library. This affordable amount could be set for example as the percentage of the budget that typically goes towards telecommunications services. The Kickstart Initiative report, for example, set this figure at 4% of a library's budget for initial deployment costs and 9% for ongoing costs for libraries.[9] ALA feels that this could be one approach for establishing support in low income areas.

To summarize:

1. Only services that are already commercially available in the area would be offered; thus a TSLRIC calculation for the service in that area could be, and should have been, made.

2. The sale of services to libraries and schools at the TSLRIC rate covers the full cost of the service and provides added direct revenues to the telecommunications company.

3. Pricing discount rates at TSLRIC eliminates the need for a large USF and minimizes providers' contributions towards such a fund.

4. If a high cost area provider's TSLRIC price is above the average TSLRIC price for similar service in low cost areas, additional price support would be provided from a universal service fund to which all eligible carriers would contribute. The amount of support would be the difference between a provider's TSLRIC for that high cost area and the average TSLRIC price of similar service in low cost areas.

5. The ALA proposal is largely self regulating. Providers must certify that the discount price they are offering is either at TSLRIC or a lower price. In either case, providers will have calculated and justified the discount price. In high cost areas or low income areas, since support will be coming from a USF to which many providers will be contributing, there will be a natural incentive for fund contributors to monitor and verify the discount rates.

4. Additional discount support should be made available for libraries in rural, insular, and other high cost areas.

The Telecommunications Act of 1996 (the Act) provides for additional discounts for rural, insular, and high cost areas (RIHC) to equalize prices based on the presumed difference in the cost of providing services. In the case of special services, the difference between rural service and urban/suburban services can be particularly high. For example, the Colorado State Library noted in its filing that

the only statewide provider of Internet access charges drastically different rates for rural and urban customers. A person living in an urban area pays a flat fee of $15 per month, for five hours of service ... Rural customers, however, pay $13.00 an hour... Such rate variability means that people in rural areas do not have equitable access to the vast resources on the Internet.[10]

To address this problem, equalization would be achieved by providing a subsidy equal to the difference between the high cost area provider's TSLRIC and the average TSLRIC for that same service in low cost areas.

The second basis for providing additional discounts is "Lifeline@ or low income adjustments that are made based on the customer's ability to pay. For example, the U.S. Census Bureau has defined "poverty areas" as those census tracts or block numbering areas (BNAs) where at least 20% of residents were poor in 1989.[11] According to U.S. Census Bureau figures approximately 14,390 census tracts or BNAs out of 61,258 in the United States or 23.49% were poverty areas.[12] Because residents in these areas are even less likely to have access themselves to telecom-munications and information services, more of a burden is placed on schools and libraries to provide access to the community.

Discounted rates for special services to libraries and schools in rural, insular, and high cost (RIHC) and low income areas are especially critical. Libraries in many such areas may be the only point of access to high speed data services and resources, many of which may be important to preserving or improving the quality of life for residents in those localities, stimulating local development, providing job opportuntities, education, and meeting a host of other information needs.

We view the role of libraries as instruments of universal service. They collectively invest in and provide access to valuable, specialized high end information services and resources. In RIHC or low income areas, libraries serve as the community information center, the principal resource and contact point between the community and the national and global information stream. These information centers will support life-long learning, adult literacy, and distance adult educational applications.

In particular, the following points need to be made:

4.1 High end services are critical to these communities, but will be difficult to obtain.

High cost will be a significant barrier to widespread access, as will the lack of expertise in setting up and running high speed networks. Although universal service policies for rural, insular, and high cost regions should manage to keep charges for core service low, it will not have the same effect on advanced services, which, due to smaller markets, will be more expensive than they would normally be in more populated and competitive markets. Yet, these services are important to provide to the communities.

Farmers and small business operators, for instance, can use a library equipped with a high speed link to access up-to-date weather information, satellite photos that may show pest damage or drought conditions, sophisticated computer simulations and analytical models, real time video conferencing with specialized experts at university research centers and government laboratories, and access to government reports and documents.

In Georgia, for instance, through the University of Georgia's data base access project named GALILEO (Georgia Library Learning Online), orchard owners check weather conditions, fruit and vegetable prices, and search for new markets on the Internet.[13]

4.2 Libraries are at the leading edge of technology deployment.

Libraries in RIHC and low income areas will also create greater markets for advanced services. Because they coalesce existing demand that sits below the price threshhold, they create a market. To the extent that they expose users to new services and train them in their use, libraries are also secondarily increasing market potential. Hence, discounts to libraries will help accelerate the deployment of an advanced infrastructure into rural and insular, often non-competitive areas, and, thereby, nationalize them--a key overall objective of U.S. telecommunications policy.

5. Certification and eligibility requirements should not be onerous, should provide accountability, and should include libraries and schools that participate in cooperative network arrangements.

The certification procedures proposed by NYNEX and others are defective and unworkable.

5.1 By inserting another layer of eligibility for libraries and schools to qualify for discounts, the NYNEX certification plan runs counter to the intent and wording of the law

The law requires offering discounts on special services to any "bona fide" request. ALA takes that language to mean that the request is from an authorized official of an eligible institution and nothing more. Discounts should not be administered as a grant program, in which recipients must apply and have their application reviewed according to some federally established standards. In fact, the proposed certification plan even requires the establishment of a new federal government entity without a single word of authorization appearing in the Act and without reference in the legislative record.

5.2 The NYNEX plan transfers decision making that properly belongs at the community level to state and federal levels.

The purpose of libraries is to meet the diverse information needs of the communities they serve. These needs can vary enormously according to geography, economics, demography, and other characteristics of those communities. Consequently, the information technology needs of those communities will also be quite diverse, as NYNEX argues persuasively in its own filing. Libraries are accountable to their own local boards to see that the services and information resources they offer are appropriate to their local communities. The proposed certification process, based on approval by comparing local plans with a "national vision," would take those decisions out of the hands of local boards and librarians, where accountability belongs, and place them at the mercy of state and federal bureaucracies.

The principal effect of the Joint Board/ FCC's ruling should be to empower, not disempower local decision making. The NYNEX plan would have the opposite effect.

5.3 The NYNEX procedure creates another layer of bureaucracy and administrative processes for libraries and schools.

Librarians, teachers, and administrators, particularly in the public sector, are already heavily overburdened with increasing demands for regulatory reporting, yet have decreasing financial and staff resources to meet them. The proposed certification procedure would impose an unnecessary additional cost burden in terms of staff time, funds, and delays; the effect of this would at least partly undo the incentives and advantages conferred by the discount in the first place. Indeed, this proposal calls for the creation of another ongoing federal government body, the Educational Telecommunications Board, with all the attendant costs, at a time when the focus of the nation is to limit the size of federal government and push policy making to local levels.

5.4 The NYNEX plan injects FCC and PUCs into local education and library policy making.

We think it is quite appropriate for the FCC and PUCs to concern themselves with improving access of the nation's libraries and schools to telecommunication services. We applaud the Congress for the language in the Act that authorizes them to do so, and we welcome this rule making. We do not think, however, that it is necessary, appropriate, or arguably, even legal, for communications regulatory bodies to inject themselves into setting standards for education or library services or operations as this proposal does.

5.5 In the ALA plan, accountability for use of these discounts rests in the hands of those best equipped to exercise it, local library administrators and boards.

Even were the discounts suggested by the ALA to be set as policy by the FCC and Joint Board, libraries and schools would still face significant expenditures. Many special services, in particular, would still be expensive to maintain, and the costs would be recurring. Furthermore, as several commentators noted, communications is only one part of the complete picture. To provide public access to advanced information services in a library requires expenditures for substantial computer and local networking equipment, printers, and scanning devices. Labor costs are needed to set up and manage the facilities, to support and counsel users, to maintain web pages and local information services, and to train library staff.

Faced with these expenses, library administrators and boards have always been careful to allocate resources to services that effectively meet the needs of their communities. Indeed, the problem would be the reverse -- how to encourage libraries and schools to move ahead rapidly into the electronic information age in the face of severe budget pressure.

5.6 ALA recommends flexible library eligibility and certification requirements.

It is critical that the Joint Board and FCC adopt rules for eligibility that allow and encourage collaborative arrangements by assuring that discounts are available to consortia of eligible organizations. In its original filing, ALA pointed out the important role played by library systems, agencies, cooperatives, consortia, and networks in spurring library use of new technology and aggregating demand.

The comments filed by the Lincoln Trail Libraries System illustrate a typical multitype library system as found in several states:

Lincoln Trail Libraries System is a state sponsored organization serving the libraries of 116 members in East Central Illinois. Academic, public, school, and special libraries participate as members. Lincoln Trail member facilities are spread over approximately 250 buildings in a nine county area. This area is largely rural. The median population served for participating school districts is 795, and the median size for participating public libraries is 3,042. The median budget of all participating libraries is $54,000, with some annual budgets as low as less than $10,000 per year.[14]

Here is another description from the North Of Boston Library Exchange:

Our consortium...was founded 15 years ago by five foresighted public libraries, and has grown to 25 public and college libraries, serving over 550,000 residents and college students. Member libraries share resources through a common database and computer system linked by dedicated data lines, and share electronic access to a periodical database. Access to the Internet is provided jointly by the consortium, a non-profit 501(c)(3) corporation which is controlled by the member libraries. Only libraries participate in these efforts, and services are not resold.[15]

The Colorado State Library stated in its filing that it is "critical that any discounted rates apply to public networks sponsored by libraries. These cooperative networks provide public access to library and other information resources. They increase the ability of libraries to share resources in a way that benefits all library users."[16] Appended to the Colorado State Library filing was a description of ACLIN, the Access Colorado Library and Information Network that provides access to the information resources of the libraries across the state, including 175 public, academic, school, and specialized library catalogs.

Certification procedures should be simple and straightforward. In many cases, a simple certification that the request by a library to a carrier for service at a discount is being made by a bona fide official empowered to order telecommunications services for the library should be sufficient, especially for a discount to a TSLRIC rate that does not involve a USF transaction. However, further assurance of eligibility may be desirable, since discounted rates for libraries in RIHC and low income areas may be below cost, and considering the range and variety of library cooperative and network arrangements for technological services and library resource sharing.

The simplest way to provide a further level of certitude regarding eligibility and use for educational purposes would be to require the requesting library or library entity to provide certification from the state library administrative agency. These agencies are responsible for library development throughout their states, and administer the Federal Library Services and Construction Act interlibrary cooperation and resource sharing program to which the Telecommunications Act of 1996 ties library eligibility. These agencies could indicate that the library or library entity is or is not eligible to receive state-based services under LSCA title III. The Washington State Library suggested such a mechanism in its filing.[17]

The rules regarding resale should distinguish between the telecommunication facilities and services offered using those facilities. The Washington State Library comments also suggest:

the FCC should seriously consider separating the telecommunications mechanisms that make an electronically based service possible (the tool) from the service itself (the product) in applying the 'no resale' prohibition. For instance, a library may not resell its discounted access to its city government, but it may levy a fee for Internet classes, or setting up and maintaining an Internet account through the library, or for maintaining a web site for its unit of local government. Such an application would appear to satisfy the intent of the Telecommunications Act, but this distinction would be more easily known and understood by all concerned if the FCC clarifies it.[18]

Eligible institutions participating in consortia with non- eligible partners should qualify for appropriate discounts to the extent that they follow accounting procedures that clearly separate telecommunication costs among the participants. The Washington State Library indicates:

A spot check of several library systems in Washington who do share networked services with other, ineligible partners (most often, a unit of local government) revealed that the library's portion of telecommunications charges can usually be readily separated from those of other partners in a network. If the FCC and the Joint Board have lingering concerns in this area, the FCC may wish to require separate, auditable records of the library's portion of a networked arrangement.[19]

ALA urges that serious consideration be given to these common sense recommendations by the Washington State Library.

The American Library Association Comments are endorsed by the American Associations of Law Libraries, Association of Research Libraries, Chief Officers of State Library Agencies, and the Urban Libraries Council. ALA thanks the Commission for its time and stands ready to assist in whatever way it can in the coming proceeding.

Respectfully submitted, AMERICAN LIBRARY ASSOCIATION

By: ______________________________

Carol C. Henderson
Executive Director, ALA Washington Office
1301 Pennsylvania Avenue, NW Suite 403
Washington, DC 20004
202/628-8410

May 7, 1996