Background

The Task Force on Universal Telephone Service was convened by Opinion and Order issued January 28, 1997, by the Pennsylvania Public Utility Commission (PaPUC). Among the various missions assigned to the Task Force was the responsibility to develop a comprehensive set of recommendations to implement the discount rate program set forth in Section 254(h) of The Telecommunications Act of 1996.

Section 254(h) requires the state regulatory commissions to set the discounts applicable to the intrastate services that will be available to eligible schools and libraries. In its May 8, 1997, Report and Order on Universal Service, the Federal Communications Commission (FCC) adopted a discount matrix which provides for discounts ranging from 20% to 90%, depending on the level of relative economic disadvantage of the eligible school or library, and also depending on whether the school or library is located in a rural or urban area. The FCC also set a yearly budget for the program not to exceed $2.25 billion, for four years. The program will fund discounts on all commercially available telecommunications services, conduit access to the Internet, and internal connections. The FCC's Order was based on the recommendations developed earlier by the Federal-State Joint Board on Universal Service issued on November 8, 1996.

The FCC stated that the schools and libraries program will begin accepting applications on July 1, 1997, from eligible schools and libraries. Disbursements from the fund will commence on January 1, 1998. The applications will be accepted on a first come, first served basis, making July 1, 1997, an implied deadline. The closer to this date that a school or library application is accepted by the federal fund administrator, the better the chance that it will receive discounts during the first year of disbursements.

The FCC Order also offers that the federal fund will cover the costs of providing the discounts on both interstate and intrastate services used by a state's schools and libraries, provided that the state regulatory commission adopts the same discount matrix for intrastate services. This makes action on this issue by the PaPUC prior to July 1, 1997, critically important to the Commonwealth and its schools and libraries.

The federal Universal Service Program will be collected from all providers of interstate telecommunications services. The service providers are authorized to recover the costs of the program through their interstate rates. The charge will not appear as a line item on customer bills.

The Task Force has established Subcommittees in order that work on its various missions can proceed in a timely manner. The Subcommittee on Schools and Libraries has been charged with the following, specific responsibilities:

1. Identification of the range of services to be provided to schools and libraries per section 254. (Order, p. 133)

2. Identification of the level of discounts to providers of services to schools and libraries per section 254 (c)(1)(B). (Order, p.133)

3. Identification of the need for changes to the definition of universal service in the future, relative to schools and libraries. (Order, p. 135)

4. Identification of ways to encourage prompt infrastructure modernization in Pennsylvania, including compliance with Chapter 30's alternative regulation and infrastructure modernization requirements. (Order, p. 135)

Scope of this Report

A comprehensive report on all facets of universal telephone service for schools and libraries will be submitted at a later point in time. There are important and related issues which the Subcommittees for both Schools and Libraries and Health Care believe bear on the implementation of the recommendations contained in this Interim Report, but it is the consensus of the Task Force that those issues need to be dealt with in a subsequent report. Brief summaries of those issues are included in the Discussion section which follows the recommendations.

The Task Force endorses the issuance of this Interim Report for the purpose of offering a procedural and substantive recommendation to the PaPUC concerning the discounts applicable to schools and libraries for telecommunications services, access to the Internet, and internal connections.

Recommendations

1. The Task Force recommends that the PaPUC adopt the definition of qualified services and the following discount matrix, as specified in the FCC Order, for the provision of qualified intrastate services to eligible schools and libraries:

SCHOOLS AND LIBRARY DISCOUNT MATRIX

DISCOUNT LEVEL

How Disadvantaged?

% of students eligible for national school lunch program	(estimated % of US schools in category)	Urban discount (%)	Rural Discount (%)
<1	3	20	25
1-19	31	40	50
20-34	19	50	60
35-49	15	60	70
50-74	16	80	80
75-100	16	90	90

A school may opt to use either an actual count of students participating in the national school lunch program or a federally-approved alternative mechanism designed to calculate the percentage of students eligible for the national school lunch program to determine its level of economic disadvantage for purposes of universal service support.

2. The Task Force urges the PaPUC to act on Recommendation No. 1 by no later than June 30, 1997, so that the Commonwealth's schools and libraries are poised to submit their applications to the discount program at the first available opportunity, which is July 1, 1997.

3. The Task Force recommends that the PaPUC issue an Administrative Order to implement Recommendations Nos. 1 and 2, and invite interested parties to submit comments following the issuance of the Administrative Order, which the Task Force should be directed to consider when shaping its comprehensive report setting forth all of its recommendations.

Discussion

These recommendations are the product of several meetings of the Subcommittee on Schools and Libraries and the full Task Force on Universal Telephone Service. The recommendations are based on the following considerations:

* The Federal Program will fund intrastate rate discounts provided that the state commission adopts the discount matrix adopted by the FCC. No intrastate sources of funds will have to be contributed to the federal program.

* The PaPUC's adoption of the FCC discount matrix does not preclude the PaPUC from subsequently considering the later adoption of steeper or additional discount measures to facilitate universal telephone service for schools and libraries. Steeper or additional discount measures must, however, be funded from an intrastate universal service program and cannot be funded from the federal program.

* Prompt action to adopt the FCC discount matrix will enable schools and libraries to submit their applications to the federal program by July 1, 1997. This will allow the Commonwealth's schools and libraries, and their service providers, to be well positioned to benefit from this federal program since funds will be disbursed on a first come, first served basis.

* The discount program is complementary to the efforts already being undertaken by the Commonwealth to facilitate technology deployment to schools and libraries. The Governor's "Link to Learn" initiative is facilitating the deployment of computers and the underlying infrastructure to support networking of schools and libraries in Pennsylvania. The discount program will assist these measures by making telecommunications services, Internet access, and internal connections more affordable for the Commonwealth's schools and libraries.

* Service providers, schools and libraries, and other interested parties are represented on the Task Force on Universal Telephone Service, and they have expressed strong, consensus support of these recommendations. (For example, please refer to Attachment: EdLiNC PA Resolution adopted May 15, 1997.)

There are two issues closely related to the implementation of these discounts which remain to be fully addressed by the Task Force. A summary of each follows:

• The definition of eligible schools and libraries as defined by the Telecommunications Act of 1996 is not consistent with definitions in other federal programs dealing with similar institutions. Intermediate Units (IU's), for example, are considered Local Education Agencies (LEA) by both the federal and the state Departments of Education. It seems clear within the spirit of the Act and the FCC Order that LEA's such as the Intermediate Units are among the types of institutions intended to benefit from the federal discount program. It is, however, also clear to the Pennsylvania Department of Education that under the terms as specified and referenced in the FCC Order, Intermediate Units are not schools. It is the sense of most members of the Subcommittee on Schools and Libraries that Pennsylvania's 29 IU's should be eligible. In fact, the many IU's that operate VoTech schools will be eligible, and all can qualify as aggregators for eligible schools and libraries. It is not clear, then, what the real impact of this issue will be on Pennsylvania's Intermediate Units The Subcommittee has established a work group to resolve the question. They will issue a report in the near future should they conclude that any additional action is warranted on this issue. In the meantime, The Pennsylvania Association of Intermediate Units, through the attached EdLiNC Resolution, does strongly support the recommendations of this Interim Report.

• The definition of "rural" was not an issue in the original Joint Board recommendations for schools and libraries, but it has been the defining issue for health care providers. The FCC Order, however, changed the discount matrix for schools and libraries such that the same definition applies to both schools and libraries and to health care providers, and the FCC Order adopted a definition which many members of these Task Force Subcommittees believe is not appropriate for Pennsylvania because it leaves out counties which are, in fact, largely rural. Butler, Cambria, Carbon, Fayette, Perry, Pike, and Somerset are examples of Pennsylvania counties not covered under the FCC Order's definition of rural. The impact of the FCC's definition on rural health care providers in Pennsylvania which do not qualify under the FCC's definition is to preclude assistance to them from the federal fund being established for rural health care providers. The impact to schools and libraries is less onerous, but the definition has an impact on them as well. The Subcommittee on Health Care has established a work group to address alternatives for the definition of "rural," and to asses the potential fiscal impact of recommending a change in the definition as applied in Pennsylvania.

As noted, the Subcommittees for both Schools and Libraries and Health Care have established work groups to develop additional recommendations, if needed. The Task Force and Subcommittee members, however, do not believe that the best interest of the Commonwealth is served by delaying action on the recommendations presented above while these issues are being resolved. If appropriate, the Subcommittees will develop additional recommendations addressing these issues, and the issues will be covered in the comprehensive report to be submitted at a later time.

Conclusion

The Task Force urges the Commission to accept and to take action on the specific recommendations contained in this Interim Report at its earliest opportunity.