A r c h i v e d  I n f o r m a t i o n

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

I. Introduction

    The Clinton Administration fully supports both the spirit and intent of this law, having worked diligently to ensure that every classroom in public, private, and parochial schools as well as every library in the United States is connected to the NII by the year 2000. Under President Clinton's Technology Literacy Challenge and the leadership of U.S. Education Secretary Richard Riley, every child in America will have access to the technological tools necessary to be ready for work and life in the 21st century. Computers in the classroom, software packages that support recognized curriculum goals, and teacher training are of the highest priority. The Administration has committed extensive resources to demonstrating how technology can enhance life-long learning with its technology grants to schools and libraries through the Commerce Department's Telecommunications and Information Infrastructure Assistance Program (TIIAP), the Education Department's Challenge Grants program, and the Department of Agriculture's Distance Learning Grants program. The President and Vice President are participating in NetDay initiatives in states across the country in an effort to wire every school for internal computer connections. At the same time, the President's 21st Century Teachers initiative contemplates 100,000 teacher volunteers working with other teachers to become more accomplished with the latest computer technology. Further, the President has issued an Executive Order making federal surplus equipment available to schools and libraries. In a sustained, systematic way, the Administration has led the effort to bring America's school and libraries into the age of technology.

    While significant progress has been made, much remains to be done. For example, in 1994 only 35 percent of public schools were connected to the Internet; a year later, penetration had risen to 50 percent. Internet connectivity for public libraries increased at an even greater pace, from 21 percent to 45 percent during approximately the same time period. However, only 9% of our classrooms are connected, severely limiting children's access to this critical teaching and learning tool. Moreover, more than 75 percent of public libraries do not currently offer some electronic capabilities sought by their patrons, such as graphical World Wide Web (WWW) interfaces.

    In addition, access to the Internet varies widely. According to a U.S. Department of Education survey, Advanced Telecommunications in U.S. Public Elementary and Secondary Schools, 1995 (hereinafter Dept. of Educ. Survey), only 31 percent of schools with large proportions of students from poor families have access to the Internet, compared to 62 percent of schools with relatively few students from poor families. Access is also related to school enrollment size -- from 39 percent for schools with fewer than 300 students to 69 percent for schools with 1,000 or more students (Table 4). This same survey also reveals that "funding and inadequate telecommunications access points were the most frequently cited barriers to acquiring or using advanced telecommunications in public schools" (Table 14).

    These barriers to using advanced telecommunications in the classroom come at a time of record school enrollments. This year, total public and private school enrollment set a new national record of 51.7 million students. Enrollments will continue to rise because of the "baby boom echo" for the next ten years to a record 54.6 million in 2006. As a result, school districts all across the nation are under enormous fiscal constraints in meeting the demands for more classrooms and teachers and many find themselves unable to move forward in meeting their technology needs.

    Similarly, public libraries' use of the Internet differs by the size of population served. Based on the National Commission on Libraries and Information Science report, The 1996 National Survey of Public Libraries and the Internet: Progress and Issues (hereinafter NCLIS), public libraries serving communities under 5,000 population are 59% less likely to use the Internet than those serving populations in excess of 100,000. Moreover, Internet use by public libraries varies by region of the country.

    The Federal-State Joint Board on universal service, created to make recommendations to the FCC on the universal service provisions of the Act, thus stands at a critical juncture in this important undertaking. In formulating its recommendations on universal service for the FCC, the Joint Board can articulate a public policy that will shape access to telecommunications and information services for the coming century. Representative Edward Markey (D-MA) and Senator Byron Dorgan (D-ND), together with U.S. Education Secretary Richard Riley and Assistant Secretary of Commerce, Larry Irving, advanced the concept of an "E-rate" applicable to basic telecommunications services for schools and libraries. This "education rate" would guarantee a free package of basic telecommunication services to every school and library in America. In addition, discounted rates for access to other services used for "educational purposes" would be established.

    On June 29, 1996, Vice President Gore stressed that affordable connections to information networks available today and in the future are an essential part of the Administration's comprehensive initiative on technology literacy. He called upon state and federal regulators to implement the vision of the Telecommunications Act to ensure the availability of affordable, universal access to the tools of the Information Age.

    On behalf of the Administration, the Departments of Commerce, Education, and Agriculture now offer guiding principles for and an approach to establishing discounted rates for schools and libraries that we believe will further the goals of the Act and will ensure that the vision of the E-rate proposal becomes a reality. We recommend that the Joint Board endorse the E-Rate concept and adopt the framework we present below.

II. Principles for Developing an E-Rate Plan

• Telecommunications and information services made available under an E-rate plan must meet recognized educational objectives, including the need for adequate bandwidth and transmission speed in order to support educator-designed curricula.

• In designing a plan to implement the E-rate, there must be a dynamic and open process utilizing advice and counsel from all groups that have a stake in the future of our educational system.

• All schools and libraries must have flexibility in procuring needed telecommunications and information services, while demonstrating an educationally sustainable plan.

• The most efficient use of the universal service fund (USF) support system should be promoted through the use of market-based techniques wherever possible.

• The support must be technology-neutral.

• All competitors seeking to serve schools and libraries must have equitable and non-discriminatory access to the USF.

III. Basic Elements of an E-Rate Plan

    This proposal makes recommendations to the Joint Board and the FCC balancing stakeholder interests, including the education community, users (e.g., basic telephone ratepayers), competing providers, and other affected parties. Designed to ensure that all schools and libraries can participate, the plan's system of discounts would be applied on a tiered basis, with a credit feature allowing for flexible use. Fundamentally, the E-rate plan would seek to ensure an initial deployment of basic telecommunications and information capabilities to all schools and libraries that would become integrated with the curricula and support research skills needed for success in the next century while also encouraging future growth.

A. A Basic Package to Assure Basic Connectivity, Transmission Speed, and Internet Access for the Nation's Schools and Libraries

    The basic package would be available to K-12 schools and libraries as directed by the Act. Key elements of this concept on a going-forward basis include the following:

• The "E-rate" would enable schools and libraries to gain access to a basic package of services at no cost to them or, alternatively, to credit the equivalent monetary amount toward a larger package of services.

• The basic package would include basic connectivity and Internet access at adequate transmission speeds to meet educational needs. This basic package of services for schools and libraries would contain both basic connectivity and Internet access and would be discounted 100 percent. This mix appears consistent with user preferences. For instance, a recent survey of educators regarding the scope of universal service found that respondents overwhelmingly view connectivity (98%) and Internet data services (94%) as their most important service and educational need, respectively (see Information Renaissance at http://info-ren.pitt.edu/universal-service/network-democracy.html).

  Basic connectivity would involve both installation and monthly rates for external access, and the inside connections or "networking" required to ensure that at least one personal computer (located in an area accessible to students) is on-line. (Networking to all classrooms remains the goal and is included in the second-tier discount discussed below.) Internet access would include e-mail and the multimedia resources of the World Wide Web (WWW). Drawing upon the criteria the new Act sets forth in §254(c)(1) with respect to universal service in general (i.e., households), both connectivity and Internet access are "essential to education," "being deployed in public telecommunications networks," and manifestly "consistent with the public interest." Albeit not yet representing a "substantial majority" of such institutions, both services are currently being subscribed to by a large and growing percentage of schools. Fifty percent of public schools are connected to the Internet and among those that are not "hooked up," 74% plan to obtain access in the future (Dept. of Educ. Survey, Table 13).

• Sufficient bandwidth to support curriculum needs would be provided at a basic level for all schools and libraries. For today's purposes, a throughput of 1.5 Mbps would seem to provide sufficient capabilities for most schools and libraries. For example, today most public libraries with service areas numbering 500,000 persons or more tend to use T-1 capabilities for their Internet connections, while those serving smaller populations currently lease bandwidth of T-1 or less (generally 56 Kbps) (NCLIS, pp.19-21). Similarly, public schools of all sizes that have access to the Internet favor T-1 or less (Education Department, Table 10). A reasonable "menu" of bandwidths to be made available to these institutions, based on their need, would seem to be a data rate up to 1.5 Mbps.

  Clearly, the bandwidth required would depend upon the curriculum or informational needs of the individual school or library. One possible approach to integrating these elements would be to determine the bandwidth and speed required to permit simultaneous on-line access by multiple students engaged in educational activities or library patrons doing electronic research. For example, many schools have found that 128 Kbps can service five computers simultaneously downloading from the Internet. Alternatively, this data rate might satisfactorily accommodate modest access for 25 computers. Where 15 PCs or more need to be on-line concurrently, a higher bandwidth would be necessary. Much more analysis needs to be done to develop a comprehensive metric, but the direction and the utility of the approach appear promising.

  This framework seeks to provide schools and libraries with the required level of connectivity without dictating a specific network architecture. It is anticipated that competing architectures or technologies will be successful in driving down price and advancing innovations in systems and services over time. This would be accomplished as districts publish requests for proposals (RFP) that outline their basic needs and allow competitors to propose various solutions to meet those needs. Through this process, technological innovations would drive down the cost of the E-rate to the universal service fund.

• Calculation of the cost of the basic package for a school or library should be based on prices or economic costs, including a reasonable profit margin, that approximate a competitive result. The basic package would be free to a school or library. Competitive bids should be used to help determine the amount reimbursable from the USF to the winning carrier. Where no bidder exists other than the incumbent provider, as in remote or other sparsely populated areas or inner cities, then a "bid ceiling" value could be calculated based upon the best available commercial rate in similarly situated areas, if any, or a "cost-plus" rate including a return to the provider, could be calculated to simulate the "best value" rate for a given school or library. State or regional (rather than national) benchmarks would be used for either price or cost-based methodologies.

    In short, the basic package would consist of basic connectivity of up to 1.5 Mbps bandwidth, and Internet e-mail and WWW capabilities. For schools and libraries, these functionalities would be free of charge although the much larger non-telecommunications costs, such as hardware and training, would not be included, and service providers would recover the amount of the support from the USF.

B. All Other Telecommunications Services Would Become Available to All Schools and Libraries at Market-Driven Discounted Rates Wherever Possible, and at Special Discounted Rates for Low-Income or High-Cost Institutions

    Beyond the available basic package of services, other services would be discounted less than 100%. These services could conceivably be any offering of telecommunications service providers other than basic connectivity and Internet access. Features of this category of functionalities would be:

• Similar to the basic package, these services would be priced based on a competitive bidding process. A school or library would pay no more than the best available commercial rate and could even receive a lower rate when multiple bidders, taking advantage of lower cost or superior technology, participate in the process. A bid ceiling could also be based on a cost methodology (including an adequate return for providers) or an appropriate percentage of the tariffed rate. Although the institutions benefit from these price pressures, the resulting discounts would not be recovered from the USF by the winning bidder because we assume the price covers cost with a margin. If schools or libraries choose not to take the basic package, the service provider would, however, receive the basic package credit applied against the total purchase of the special and advanced services.

• For low-income or high-cost schools or libraries, an additional discount would be applicable. High-cost or low-income areas may still not be able to afford advanced services. To remedy this, an additional discount would be made available to institutions in these categories. The discount for a given school or library could be based on an affordability index whereby more seriously disadvantaged institutions would receive greater price reductions.

    The basket of special and advanced services, then, would feature market-based discounts that would be expanded in the case of high-cost or low-income schools or libraries. Overall, the E-rate plan would create a system of incentives that catalyze efficient prices and establish discounts that ensure basic telecom functionalities (i.e., connectivity and Internet access) for all K-12 schools and libraries, with additional support provided to those institutions that are either high-cost or low-income. The basic package credit and the additional discount for high-cost or low-income institutions would be reimbursed from the universal service fund. This approach preserves technological neutrality by fostering outcomes based on cost, capability, and user demand -- not government fiat. Considerable flexibility would be accorded schools and libraries through choice of provider, and type of connectivity and Internet access, plus the offering of a portable credit. For those providers participating in the E-rate program, fair, non-discriminatory access would be afforded to USF support.

C. The Size of the Fund Would Be Dictated by Market Forces Wherever Possible.

    The plan outlined above relies heavily on market-based influences. Competitive bidding for best value -- the best combination of price and functionality -- is promoted at each level. At the basic package level, the allotted credit would be as close as possible to a competitive price. Given the nascency of competition in many areas, either a calculated bid-ceiling or a "cost plus" approach with some reasonable return for the service provider should be used to approximate a competitive price. For purposes of determining the impact on the USF, this price would include monthly rates for connectivity and Internet access, plus amortized installation costs, as inputs into the fund. The basic package (portable) credit would -- for purposes of this initial E-rate plan -- not exceed the amount based on the appropriate regional or state-specific benchmark. In addition, if a competing provider can offer a lower cost or better value basic package, then they will likely win the bid.

    For the package of special and advanced services, the bids, constrained by a "best value" ceiling, would serve to substantially reduce the price a school or library would pay but would not generally be reimbursed from the USF; the fund would be tapped only for high-cost and low-income areas. Purchases for those institutions from the special and advanced service basket in each case would reflect deep discounts applied to the winning competitive value-bid. (Rural locales comprise a disproportionately large percentage of high-cost areas, as illustrated in the Attachment). The amount of the discounts for high-cost and low-income areas would be covered by the USF.

    The overall size of the fund will be a function of several factors at any given point in time. These include: number and size of schools and libraries; their associated requirements for basic connectivity (e.g., transmission speed adequate to serve the number of users and the one internal connection and Internet access), or advanced connectivity; the value of the basic package (portable) credit; and, the particular deep-discount methodology used for low-income or high-cost institutions and the best-value bid from which these discounts would be calculated.

    The ceiling for the bidding process would also affect the size of the fund. For the basic package, if there are no bids, the ceiling would be calculated on the basis of the best available commercial rate in a similarly situated area or on a cost-plus basis. For low-income or high-cost schools or libraries, the deep-discount percentage(s) would be applied with respect to special and advanced services to an already discounted price based on the best available commercial rate or an appropriate costing methodology.

D. A Properly-Crafted Procurement Plan Would Promote NII Access on a Sustained Basis for Schools and Libraries

    Establishing an appropriate set of incentives and safeguards for matching purchasing decision with technology plans will foster an integrated approach for schools and libraries to participate in the Information Age. Schools and libraries still have adequate incentives to obtain only the bandwidth they need in their basic package. First, the new Act requires a bona fide request for preferential treatment from telecommunications providers. This could take the form of self-certification as part of a request for proposal (RFP). Forty-five states currently have technology plans, and these would help ensure that the purchased services are part of sustainable educational goals. Administrative districts would also oversee budget-related actions by individual schools or libraries. Moreover, equipment needed to use higher bandwidth connections is frequently more costly, thus creating an incentive to realistically estimate their requirements.

    While connectivity using services up to the 1.5 Mbps data rate will be included in the basic package of services provided at no cost, it is not anticipated that all schools and libraries will choose to employ the full 1.5 Mbps capacity at each site. The costs for the purchase, administration, and maintenance of the equipment necessary to terminate and use the connection service, be it 1.5 Mbps, 128 Kbps, or 56 Kbps, will be born by the schools and libraries. These costs often increase as the bandwidth of the service increases, thus, a school or library with limited resources has no incentive to seek a "free" 1.5 Mbps data rate if, for example, the cost of the accompanying equipment is significantly greater than that required to support the free ISDN service.

    The workings of the marketplace, coupled with a variety of public-private partnerships for training, hardware, content, and technical support, will help meet the Administration's goals of connecting all schools and libraries by the year 2000. Contributions -- whether donations of new or surplus systems, free software, NetDay internal connections, volunteer training or technical assistance -- would complement the E-rate. Moreover, market opportunities can be realized by users as well as suppliers; banding together in buying coalitions, schools and libraries can produce even higher volume discounts and scale economies benefiting all concerned. In addition to the importance of contributions and market opportunities, sustainability should be fostered due to the attractiveness of both "total-package" and volume sales for providers as well as the new capabilities afforded students, teachers, librarians, and their patrons through procurement of Information Age capabilities.

E. Integrating Education and Functionalities

    In implementing this plan, a pivotal role would be carved out for the education community. Educational objectives and curricula should properly drive the use of bandwidth, transmission speed, and other functionalities. The Administration recommends that the E-rate and USF approach -- in fact, all facets of the new universal service mechanism -- be revisited by the Joint Board and the FCC every three years or sooner if requested by bona fide petitions. For example, the basic package should be reviewed periodically to determine whether schools and libraries require different elements over time. During these triennial reviews, policymakers should solicit views from all stakeholders in the educational system to ensure a dynamic and self-correcting process.

    This proposal supports the long-standing American tradition of providing free education to every American child. Moreover, this proposal does not give schools a free ride. In fact, schools and libraries are investing hundreds of millions of dollars on computers, software, and teacher training. Those investments could be jeopardized if our schools and libraries cannot afford to pay monthly telecommunications access charges. This proposal guarantees universal access to the Internet for every school and library in America.

IV. Conclusion

    Respectfully submitted,

Larry Irving                               ___________________ Assistant Secretary for                    Barbara S. Wellbery   Communications & Information             Chief Counsel      Shirl Kinne                                __________________     Deputy Assistant Secretary                 Cathleen K. Wasilewski                                            Attorney                                      Kathryn C. Brown                           Kristan Van Hook   Associate Administrator                  Office of the Assistant James McConnaughey                           Secretary Office of Policy Analysis   and Development  Stephen Downs Office of Telecommunications and   Information Applications                                             National Telecommunications and                                            Information Administration U.S.                                               Department of Commerce                                             Room 4713                                            1401 Constitution Avenue, N.W.                                            Washington, D.C.  20230                                            (202) 482-1816                                                                                                October 10,1996 

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