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Incumbent local exchange carriers pass through a portion of their universal service contribution obligation in the access charges they receive from interexchange carriers.Q (iii) information service providers, which are not obligated by the statute to contribute, will make no direct contribution; information service providers, however, will contribute significant amounts indirectly, as highvolume purchasers of  X-telecommunications, as explained in the Commission's April 10th Report;l? {OT-ԍxApril 10th Report at   6672. In comments filed in connection with the April 10, 1998 Report to Congress on Universal Service, America Online reported that it expects to spend approximately $1.2 billion for telecommunications services in fiscal 1999. The prices that it pays for those services incorporate universal  {O -service contributions. See id. at n. 130. America Online also estimates that Internet and online service production and consumption has generated roughly between $10 billion and $28 billion of incremental telecommunications services between 1990 and 1997, with incremental revenues in 1998 likely to be  {O -approximately between $6 billion and $17 billion. See Letter from George Vradenberg, III, America Online, to  {O -Chairman William E. Kennard, FCC, dated May 6, 1998 (citing MacKieMason, Quantifying the Contribution: Estimates of Telecommunications Services Expenditures Attributable to Online Service Production and  {Od-Consumption (May 1998)). l (iv) commercial mobile radio service providers will contribute approximately $87 million; and (v) other  X-providers (e.g., competitive local exchange providers, private carriers) will contribute approximately $92.5 million.  XL-x B.` ` Disbursements for Schools and Libraries Support.  X -x23. ` ` Pursuant to Congress' mandate to establish adequate funding for the schools  X -and libraries support mechanism, the Commission in the Universal Service Order set an annual cap for schools and libraries funding, basing its decision on the recommendations of the Joint Board and a record consisting of more than 100,000 pages of comments, expert  X -testimony, and other submissions.!@z  {O-ԍxUniversal Service Order, 12 FCC Rcd at 9054,  529. In addition to setting the annual cap, the Commission has imposed reasonable limitations on the types of discounted services that eligible schools, libraries, and rural health care providers may receive. Indeed, a significant portion of the costs of connecting schools comes from computers, software, and teacher training. These costs are not supported by universal service. Universal service support provides discounts only for telecommunications services, Internet access, and internal connections. In this way, the Commission's plan augments, not duplicates, the present efforts by states and localities to bring the information superhighway to America's classrooms and libraries. ! Because of the effective administration of the support mechanism, and the public's corresponding interest, the schools and libraries support will likely reach thousands of schools and libraries, and thereby offer meaningful, vital access to these communities. Indeed, the response and interest in the schools and libraries support mechanism attests to its tremendous success. During the initial 75day window for filing applications, more than 30,000 completed applications were received from schools and"Q@0*_%_% "  X-libraries in every state in the union.A yOy-ԍxThird Quarter 1998 Fund Size Requirements for the Schools and Libraries Universal Service Program, dated May 1, 1998, at 2, appended hereto as Attachment C. As of May 1, 1998, SLC projected that $2.02 billion in  X-discounts have been requested by applicants who have filed through April 28, 1998.:B  {O-ԍxId.:  X-x24. ` ` The Senate bill directs three specific inquiries concerning disbursements for schools and libraries support. First, an estimate is requested of the costs of providing schools and libraries support, based on the applications for funding received as of April 15,  Xv-disaggregated by the eligible services and facilities.C( v yO -ԍxSection 2005(b)(3)(D) of the Senate bill requests: "[B]ased on the applications for funding under section 254(h) of the Communications Act of 1934 (47 U.S.C. 254(h)) received as of April 15, 1998, an estimate of the costs of providing universal service support to schools and libraries under that section disaggregated by eligible services and facilities as set forth in the eligibility list of the Schools and Libraries Corporation, including (i) the amounts requested for costs associated with telecommunications services; (ii) the amounts requested for costs described in clause (i) plus the costs of internal connections under the program; and (iii) the amounts requested for the costs described in clause (ii), plus the cost of internet access; (iv) the amount requested by eligible schools and libraries in each category and discount level listed in the matrix appearing at paragraph 520 of the Commission's May 8, 1997 Order, calculated as dollar figures and as percentages of the total of all requests: (I) the amount requested by eligible schools and libraries in each such category and discount level to provide telecommunications services; (II) the amount requested by eligible schools and libraries in each such category and discount level to provide internal connections; and (III) the amount requested by eligible schools and libraries in each such category and discount level to provide internet access." Second, a justification is sought of the amount, if any, by which the total requested disbursements from the fund may exceed the  XH-amount of available contributions for the second quarter.4DXH yO-ԍxSection 2005(b)(3)(E) of the Senate bill requests: "[A] justification for the amount, if any, by which the total requested disbursements form the fund described in subparagraph (D) exceeds the amount of available contributions described in subparagraph (B)."4 Finally, an estimate is requested for the amount of contributions that will be required for the program in the third and fourth  X -quarters of 1998.E  yO-ԍxSection 2005(b)(3)(F) of the Senate bill requests: "[B]ased on the amount described in subparagraph (D), an estimate of the amount of contributions that will be required for the schools and libraries program in the third and fourth quarters of 1998, and, to the extent these estimated contributions for the third and fourth quarter exceed the current secondquarter contribution, the Commission shall provide an estimate of the amount of support that will be needed for each of the eligible services and facilities as set forth in the eligibility list of the Schools and Libraries Corporation, and disaggregated as specified in subparagraph (D)." " :E0*_%_%A "Ԍ X-x25. ` ` In response, the costs, disaggregated by eligible services and facilities are  X-reflected in SLC's May 7, 1998 letter appended hereto as Attachment D.F yOb-ԍxLetter from Schools and Libraries Corporation to Chairman William E. Kennard, FCC, dated May 7, 1998, appended hereto as Attachment D. Although the total requested disbursements from the fund described above exceed the amount of available contributions described in Attachment B, the explanation for this difference is that the disbursements reflect the amount requested for a twelve month period, while the contributions reported cover only a six month period. The contributions required in the third and fourth quarter will be determined after soliciting public comment in public notices that will be released early next week. In particular, we intend to seek comment on whether the amount collected for universal service support for schools and libraries in 1998 should equal the demand reported by SLC or be limited to an amount that does not cause long distance rates to increase. x  X -x C.` ` Access Charge Reductions. x  X -x26.` ` The Senate bill also seeks information relating to access charges. Specifically, it directs that an "estimate of the expected reductions in interstate access charges anticipated  X-on July 1, 1998"GG  yOa-ԍxSection 2005(b)(3)(A).G be provided, as well as "an explanation as to whether access charge reductions should be passed through on a dollarfordollar basis to each customer class on a  Xb-proportionate basis."GHb yO-ԍxSection 2005(b)(3)(H).G Although the local exchange carriers will not file their access tariffs until June 16, 1998, based on preliminary information provided by the local exchange carriers, we estimate that the July 1, 1998 access charge reductions will be approximately $700 million below current levels. Given this projected access charge reduction, we estimate that the quarterly collection rate for schools and libraries could rise from $325 million (the second  X-quarter collection rate) to approximately $524 millionIa@ X-#Xj\  P6G;XP#эxW#X\  P6G;/P#e reach this result in the following manner. Long distance carriers pay direct contributions to universal service and, through interstate access charges, indirectly pay for most of the local exchange carrier contributions. Directly and indirectly, long distance carriers are responsible for approximately 82.5 percent of schools and libraries and rural health care contributions. Multiplying $700 million by 1/.825 yields $848 million. We divide $848 million by 4 to find the incremental amount available for each quarter, which is $212 million. We then add $212 million to the average quarterly collection rate for the first half of 1998, $312 million (the average of $300 and 325 million). Accordingly, access charge reductions of $700 million yield $524 million as a quarterly collection rate for the third and fourth quarters of 1998.  without increasing total access and universal service payments by long distance carriers. Accordingly, schools and libraries could"i I0*_%_%" be funded at approximately $1.67 billion for the 1998 calendar year without increasing total access and universal service payment by long distance carriers.  X-x27. ` ` In January 1998, the Commission began the process of removing funding for universal service from access charges. Instead of this implicit funding, we began funding universal service through explicit contributions from a broader array of telecommunications providers. In addition, in January 1998, the Commission implemented access charge reductions, and began collection of contributions for the schools and libraries and rural health care mechanisms. We have found that changes in universal service support that were implemented January 1, 1998 did not increase the overall costs of longdistance carriers or the  X -costs that local telephone companies need to collect in local rates.xJ"  {O -ԍxSee Letter from Chairman William E. Kennard, FCC, to the Honorable Thomas J. Bliley, Chairman, Committee on Commerce, U.S. House of Representatives, dated May 7, 1998 at Attachment, "Changes in Interstate Interexchange Carrier Costs Occuring on January 1, 1998." (Letter and attachment appended hereto as Attachment E). x For CMRS customers, we are finding that consumers have been seeing, and are continuing to see, significant reductions in prices even though the 1996 Act required for the first time that wireless carriers  X -contribute to the support of universal service.K  {O8-ԍxSee Letter from Chairman William E. Kennard, FCC, to the Honorable Thomas J. Bliley, Chairman, Committee on Commerce, U.S. House of Representatives dated May 7, 1998 (Attachment E). x  X -x28. ` ` Access charges have been a significant portion of the total cost of providing longdistance service for all facilitiesbased long distance carriers. The Commission has  Xy-previously found that the interstate long distance market is substantially competitive.Ln y  {O6-ԍxSee, e.g., Policy and Rules Concerning the Interstate, Interexchange Marketplace; Implementation of  {O-Section 254(g) of the Communications Act of 1934, as amended, CC Docket No. 9661, Second Report and  {O-Order, 11 FCC Rcd 20730, 20733, 2074243 (1996) (Interexchange Second Report and Order), stay granted,  {O-MCI Telecommunications Corp. v. FCC, No. 961459 (D.C. Cir. Feb. 13, 1997), Order on Reconsideration, 12  {O^-FCC Rcd 15014 (1997), further recon. pending; Motion of AT&T to be Reclassified as a Nondominant Carrier,  {O(-Order, 11 FCC Rcd 3271, 327879, 3288 (1995) (AT&T Reclassification Order), Order on Reconsideration, Order Denying Petition for Rulemaking, Second Order on Reconsideration in CC Docket No. 9661, 12 FCC Rcd  {O-20787 (1997); Competition in the Interstate, Interexchange Marketplace, CC Docket No. 90132, Report and Order, 6 FCC Rcd 5880, 5887 (1991), Order, 6 FCC Rcd 7255, Memorandum Opinion and Order, 7 FCC Rcd 2677 (1992), Memorandum Opinion and Order on Reconsideration, 8 FCC Rcd 2659 (1993), Second Report and Order, 8 FCC Rcd 3668 (1993), Memorandum Opinion and Order, 8 FCC Rcd 5046 (1993), Memorandum Opinion and Order on Reconsideration, 10 FCC Rcd 4562 (1995).  Because past experience indicates that long distance carriers tend to compete on the basis of perminute rates, among other things, this competition creates strong incentives for carriers to reflect reductions in their costs through lower rates. Therefore, we would expect long"4BL0*_%_%" distance companies to pass through access charge reductions, and especially reductions in per X-minute access charges, to their customers.nMB yOb-ԍx Chairman Kennard has expressed his commitment to ensuring passthrough to residential as well as business customers. Toward that end, the Chairman recently requested explanations from long distance carriers  {O-of how their reduction in access charges were passed through to customers. See  Letter from Chairman William E. Kennard, FCC, to Michael C. Armstrong, AT&T, dated February 26, 1998; Letter from Chairman William E. Kennard, FCC, to Bert Roberts, MCI, dated February 26, 1998; Letter from Chairman William E. Kennard, FCC, to William T. Esrey, Sprint, dated February 26, 1998. We are continuing our analysis of interstate longdistance rates to determine whether longdistance carrier rates have fully reflected the access charge reductions this Commission ordered to take effect on that date.n x  X- CONCLUSION  X-x29.` ` The interest in and success of the schools and libraries and rural health care support mechanisms to date attests to Congress' vision in extending universal service support to these important missions. This Report responds to the directives of the Senate bill. It proposes a revised structure for the administration of schools and libraries and rural health care support, and additionally provides documentation of the funding and disbursements for the schools and libraries mechanism, in particular. As described above, this Report seeks Congress' support and continuing partnership in discharging our obligations under the Act, and bringing the full benefits of a free and open telecommunications marketplace to all Americans. x` `  hh x` `  hh@FEDERAL COMMUNICATIONS COMMISSION x` `  hh@Magalie Roman Salas x` `  hh@Secretary x"M0*_%_%6" X  x#Xj\  P6G;XP#` `  hh@hpp  xx x  X- Separate Statement Nof  Xv-Commissioner Susan Ness ĐTP  V -Re: Report in Response to Senate Bill 1768 and Conference Report on H.R. 3579 I welcome today's opportunity for the Commission to respond to concerns that have been expressed by Congress. We have no greater responsibility, or challenge, than to implement successfully the Telecommunications Act of 1996. An active and continuing dialogue between the FCC and Congress is important to keeping implementation on track. We do our best to follow the statute as Congress wrote it, but, to the extent that we receive additional congressional guidance on ways in which our implementation decisions can be improved, I am happy to be responsive. In particular, there have been significant congressional concerns about the administrative structures that were established to administer various universal service support mechanisms. Although I firmly believe that the structures previously established were suited to the goals of efficiency and accountability, and consistent with our statutory authority, it is clear that Congress believes the job can be done better if, at a minimum, the Schools and Library Corporation and the Rural Health Care Corporation are combined in a single entity. I believe we should follow this guidance and that the best way to do so probably is to fold both SLC and RHCC into the Universal Service Administrative Corporation. A final decision, of course, should await the development of a specific proposal, the opportunity for deliberations by the Commission and the state members of the FederalState Joint Board on universal service, and confirmation from Congress that the revised structure will meet with approval. It is my sincere hope that this approach will not only receive congressional support but also meet the needs of the intended beneficiaries of the universal service provisions of the Telecommunications Act. Similarly, if Congress has concerns about the salaries paid to the senior employees of SLC, RHCC, USAC, or NECA, then it is our responsibility to take responsive action. Funds used for administration of the highcost, lowincome, or school, library, and rural health support mechanisms necessarily diminish, to some degree, the funds that will be available for the beneficiaries of the programs. Although these corporations require capable administrators, and the boards of directors of each of these associations have made independent decisions about the salaries they pay their executives, the unambiguous wishes of Congress must be respected and followed."#'M0*((%"ԌThis report also provides valuable information about the manner in which universal service  X-support is being collected. The key point this report demonstrates is that universal service funding for schools, libraries, and rural health care is being collected without necessitating  X-increases in the costs of services to telecommunications consumers. Access charge reductions, in particular, coupled with growth in the industry, declining costs, increased competition, and the elimination of deadweight losses, enable the new universal service support mechanisms to be initiated and the lowincome and highcost programs to be  Xc-maintained while aggregate prices to consumers continue to decline. There is, to be sure, a growing amount of confusion about various lineitems that are appearing on consumers' bills, and I believe we should be forceful in acting to ensure that these charges are not misleading or inappropriate. But the line on the bill that matters most is the bottom line, and that's the line we are working hardest to reduce. I want to work with Congress to ensure that the Telecommunications Act is a resounding success. I strongly believe that Congress acted wisely in deciding to expand the traditional notion of universal service by supporting the connection of classrooms and libraries to the information superhighway. I will continue to work to ensure that this vision which is so crucial to our success as a nation in the 21st century is successfully implemented, with congressional guidance and support."hM0*0*0*"     X-x` `  hh@hpp  А X-T T  X-T   DISSENTING STATEMENT OF COMMISSIONER  Xv- HAROLD FURCHTGOTTROTH TP  VH-   V1-Re:XxUniversal Service Report to Congress in Response to Senate bill 1768 and Conference Report on HR 3579. (#  X -  X -Introduction x xI regretfully dissent from the majority's Report to Congress on universal service. I remain concerned that the Commission fails to address the underlying frustration that many members of Congress, and the general public feel, as a result of the Commission's misguided Universal Service Order last May. xAs I stated only a month ago in this Commission's last report to Congress: priorities matter. I remain convinced that rural, highcost universal service is not just one of many  X-objectives of Section 254; it should be the highest priority. The federal government has had universal service programs for rural, highcost areas and for lowincome Americans for many years. Section 254 embodied these ideals and set forth goals that emphasize rural, highcost support as well as lowincome support and other objectives. Instead of such an emphasis, we have made costly promises for some services without making promises for increases in rural, highcost programs. Rural, highcost universal service issues should not be resolved and implemented in some dim and distant future after all other universal service issues have been  Xg-resolved; rural, highcost universal service issues should be resolved and implemented first. Rural, highcost universal service should not be viewed as the residual after enormous amounts for other federal universal service obligations have been promised; rural, highcost  X$-universal service should receive the lion's share of any increase in the federal universal service fund. xThis Report provides another missed opportunity, and the accompanying structural changes to the Schools and Libraries Corporation that are required by it provide another reason, for the Commission to put on hold its plans to implement a farreaching schools and libraries program until after it has finished implementing the rural, highcost fund issues. I also object to the majority's continued refusal to allow any of the benefits of reduced access charges to actually flow to consumers. For these and other reasons explained below, I must reluctantly and respectfully dissent from the majority opinion today. ")'M0*((%"Ԍ  X- I.XxPublic Funds Should Not Be Allocated for Schools and Libraries Until the Proposed Restructuring Has Been Completed.(#  X- xThe proposal for consolidating the three corporations is a good first step in reaching a more rational, efficient, and legal structure to administer universal service. I have several reservations, however, with the specifics of the proposal. First, I am concerned that the proposal merely perpetuates too much of the current bureaucracy. For example, it appears that the majority would simply fold the current Schools and Libraries and Rural Health Care Corporations into USAC in their entirety, with the new "operational units" maintaining virtual autonomy as they would have the power to bind the USAC Board regarding matters within  X -their expertise.yN N yOe -ԍxReport at footnote 33, para. 11. #x6X@`7 bX@#y I am concerned that the ultimate reorganization/streamlining plan obtain the benefits of economies of scale and consolidate the ultimate responsibility for universal service into one decisionmaker. xThe consolidation of the ultimate decisionmaking authority is also important for accountability. I am concerned that adequate safeguards may not have been implemented to prevent fraud and abuse. Recently, there have been complaints that some schools and libraries are basing their award of contracts on the amount of ineligible items that the bidder is willing to provide at "no cost." Such actions could encourage bidders to inflate the cost of eligible services, to provide ineligible services for free. This is the type of behavior that the Commission must ensure is not taking place prior to the disbursement of any public funds. xI also remain concerned that the majority fails to address fully the issues raised by the GAO report regarding the legality of the Commission creating these corporations without specific statutory authority. I commend the majority for seeking Congressional guidance regarding this issue. I remain convinced, however, that the Commission should explicitly acknowledge the legitimacy of GAO's conclusions regarding the legality of these corporations, and wait for Congressional approval of the revised structure prior to further expenditure of any funds. I fail to see how the Commission can direct that these corporations continue to act without first receiving the requisite authorization from Congress. xIn addition, I would take this opportunity to clarify that the full Commission must take a more active role in the direct oversight of these quasipublic companies. Congress clearly favors a more efficient organization of only limited administrative functions, without the  X-ability to "interpret the intent of Congress" or "any rule promulgated by the Commission."~OXN yO#-ԍxSection 2005(b) of Senate bill 1768. #x6X@`7 bX@#~ Yet, the majority indicates that the revised entity might be able to apply its expertise to  X!-interpreting and applying existing "decisional principles."kP!N yOF'-ԍxReport at para. 14.#x6X@`7 bX@#k I am concerned that, while a good"!xP0*(( " start, the majority does not go far enough in delineating specific means of ensuring full  X-Commission involvement in all budgetary decisions and the policymaking process.QN yOb-ԍxFor example, I am concerned that about the degree of oversight that is being exercised regarding administrative and startup costs. In their latest filing, the Schools and Libraries Corporation indicates that it paid NECA $1.86 million in startup costs, more than three times the original estimate, and it is still not able to provide an accurate estimate of all its administrative costs for the first quarter. Third Quarter 1998 Fund Size  yO-Requirements for the Schools and Libraries universal Service Program, dated May 1, 1998. #x6X@`7 bX@#с As it will take some time to restructure the universal service corporations, it would be prudent and in the taxpayers interest to suspend further expenditures on schools and libraries.  Xv- II.XxThe Excessive Funding Proposed for Schools and Libraries Will Harm  X_-Consumers and Increase Telecommunication Rates (# xI also object to the majority's conclusions regarding the funding that has been provided to the schools and libraries program. For the following reasons, I disagree with the majority's conclusion that the steps the Commission has taken thus far were necessary to assure that the schools and libraries funding mechanism was adequately funded and the program delivered  X -efficiently.kR xN yO-ԍxReport at para. 16.#x6X@`7 bX@#k xFirst, as I have stated previously, the size and scope of the current schools and libraries program is in excess of what was envisioned by Congress, and thus beyond the Commission's authority to establish. Nothing in the statute or the legislative history indicates that Congress contemplated substantial new taxes on interstate or other telecommunications services as a result of the Telecommunications Act of 1996, nor did it envision price increases  X4-ԩ much less substantial price increases in any telecommunications market.S 4N yO-ԍxSee for example, the comments of Sen. Slade Gorton, at a Hearing before the Subcommittee on Communications of the Senate Committee on Commerce, Science, and Transportation, March 25, 1998; and the comments of Rep. Michael Oxley at a Hearing before the Telecommunications, Trade, and Consumer Protection  yOE-Subcommittee of the House Committee on Commerce, March 31, 1998. #x6X@`7 bX@# xThe Schools and Libraries Corporation projected that, as of May 1, 1998, $2.02 billion in discounts has been requested by applicants. Although current Commission rules cap the program at $2.25 billion or demand, the report indicates that the Commission will seek comment on whether the amount collected this year should equal demand or "be limited to an  X-amount that does not cause long distance rates to increase."kT N yOK$-ԍxReport at para. 23.#x6X@`7 bX@#k While I certainly agree that the Commission should not collect any revenues that would cause long distance rates to "increase," I remain frustrated that the majority assumes that any reduction in access charges  Xe-should be "used" for new universal service programs, instead of turning any of the reductions"e T0*((" back to consumers. Unfortunately, the majority indicates its intention to use the entire $700 million in access charge reductions estimated for July to increase the quarterly contributions to the schools and libraries program from $325 million to approximately $524 million for a fund of $1.67 billion for 1998. This amount is not only excessive but prevents consumers from receiving any of the benefits of deregulation. xChairman Kennard's letter to Chairman Bliley, Attachment E to this Report, entirely misses this point. The issue is not whether, despite massive tax increases that just offset decreases in federal access fee and charges, IXCs have no net differences in costs. The issue is whether, absent massive new taxes, consumers would be better off. By the Bureau's own analysis, consumers are bearing $2.4 billion in new costs in 1998 alone. How much lower might prices have been? How much more might the promise of the 1996 Act of lower prices for consumers been fulfilled? How many more businesses might have been spawned? Professor J. Hausman has estimated that consumers lose more than $2 for every $1 paid in  X -taxes on longdistance services.U N yO7-ԍxJerry Hausman, "Taxation by Telecommunications Regulation," National Bureau for Economic Research,  yO-Working Paper Series 6260, November 1997.#x6X@`7 bX@# Thus, the FCC had an opportunity to put more than $5 billion back in the pockets of ordinary Americans. But the FCC has chosen not to. xThere is implicit in the Bureau's calculations a set of new taxes that just balances a reduction in federal charges and fees. Is this balance coincidental or the artifact of a private deal between industry and the Commission? The promise of the 1996 Act was that rates would come down, not that they would remain the same as the result of secret deals in which one set of federal taxes goes down and another goes up, while citizens are none the worse for the regulatory sleight of hand. Are we left to believe that if access charges and other fees had been reduced by only $200 million, that new universal service taxes would have been only $200 million? Or that if fee reductions had been $5 billion that new taxes would have been $5 billion? Moreover, there is no assurance that the consumers who benefit from access reductions will be the same consumers who will bear the new universal service burden. For example, business consumers could disproportionately benefit from the access charge reduction while residential consumers pay for new universal service fees. xSecond, I am concerned that the majority continues to use all access reductions for new universal service fees while the highcost program has not been fully implemented. As I argued in our previous report to Congress, "the potential pot of revenue that the FCC can collect for universal service from fees on interstate services is limited." Some potential universal service beneficiaries have been "promised" enormous and unending benefits, long before there are actual revenues for these programs and long before other potential universal service beneficiaries (rural, highcost programs) have voiced all of their concerns. xThird, the plan outlined in the Report not only uses every cent of access charge  X#-reduction for new universal service programs, it will actually cause an increase in fees for some telecommunication services. Buried in the Report is the proposition that a $700 million"j$ U0*((F#" reduction in access charges will yield $848 million in additional funds for schools and  X-libraries.zVN yOb-ԍxFootnote 73 accompanying para. 24.#x6X@`7 bX@#z How is this possible? Because the majority anticipates increasing all contribution rates equally, even though almost 20% of the schools and libraries contributors will not benefit from reduced access charges. Thus, for example, wireless carriers will be required to pay proportionately higher costs, despite the fact that they have received no access charge reduction. xFourth, I also note that this entire dilemma has been caused, at least in part, by the Commission's misguided and unlawful decision to fund inside wiring and other nontelecommunications services. As I explained in the April 10th report to Congress, the Commission has no statutory basis to provide direct financial support for nontelecommunications services and to nontelecommunications carriers. According to the Schools and Libraries Corporations own estimates, the vast majority of the program's demand  X -is for nontelecommunications services and facilities.(W XN yO-ԍxAttachment D; total demand for telecom services is only $655,688,020, while total demand for internet  yO-services is $88,208,299 and total demand for internal connections is $1,275,399,870. #x6X@`7 bX@#( The vast majority of demand is for funds to provide inside wiring what should be an ineligible facility. Indeed, the amount  X -already collected this year would almost fully fund the demand for telecom services. xAt a minimum, I believe the Commission should reduce the current quarterly contribution rate for schools and libraries from $325 million to a mere $25 million. Such a reduction would allow previous access charge reductions and those contemplated for this July to flow to consumers directly, while still providing more than sufficient funds $675 million  X-for 1998 to pay for all of the telecommunications services that have been requested by any school this year. The Commission would then have until January 1, 1999 to reevaluate the scope and scale of the schools and libraries program, while also finishing what should have been its first priority, namely, the rural and highcost program. xIn addition, I am concerned with the report's suggestion that carriers should conceal their universal service contributions from consumers. As I have stated previously, no carrier should have its billing information restricted or limited by the Commission. The Commission has explicitly provided carriers with the flexibility to decide how to recover their payments, including as charges on consumers bills, and I am concerned by implications that such charges are fraudulent or misrepresentations. Indeed, section 254(e) requires that funding mechanisms for universal service be explicit. Consumers have a right to know what federal charges they are paying; the Commission should not discourage companies from placing universal service charges on their bills. xFinally, I continue to believe that the Commission erred in assessing contributions to the schools and libraries and rural health care programs based on intrastate revenues. Any federal assessment on intrastate revenues is beyond the Commission's authority. Section 2(b)""W0*((!" of the Communications Act creates a system of dual federalstate regulation for telecommunications. In essence, the Act establishes federal authority over interstate communications services while protecting state jurisdiction over intrastate services. I believe  X-that the Commission's decision to look to intrastate revenues to determine federal universal  X-service support and to establish a minimum discount for intrastate telecommunications services for schools and libraries impermissibly encroaches on state's rights and violates the  Xz-Act's fundamental federalstate dichotomy.  XL- Conclusion xSection 254 is an integral part of the Telecommunications Act of 1996. The Commission has yet to implement it properly, despite repeated opportunities. The proper implementation of section 254 should be of the highest priority. " W0*((m "  X-  X(#PT T wSEPARATE STATEMENT OF TP COMMISSIONER MICHAEL K. POWELL, DISSENTING TP  V- Re:XxReport in Response to Senate Bill 1768 and Conference Report on H.R. 3579.(# xI write separately to explain why I am dissenting from this Report to Congress. The Common Carrier Bureau has done an admirable job of drafting the text of this Report over the last several weeks despite uncertainties regarding whether Congress would ultimately request the Report and what that request would entail. As a result of poor internal Commission processing, however, I have not been given a full opportunity to consider and influence the content of this Report. Because I do have some concerns with the content of the Report, I feel I have no choice but to dissent. xIn the interest of being responsive to Congress, however, I briefly describe below some of my concerns regarding the Report and our universal service programs generally:  XK-XxI am increasingly troubled by the suggestion, evidenced in the Report, that carriers should conceal their universal service contributions or not allow carriers to recover such contributions from consumers. Section 254(e) of the Act expressly mandates that universal service support be "explicit." 47 U.S.C.  254(e). Further, as the Report recognizes, carriers have the flexibility to decide how they will recover their universal service contributions, and I doubt the Commission has authority to prevent carriers from recovering from their customers. My fear is that, rather than accept our apparent lack of authority to prevent carriers from passing their contributions on to their customers, the Commission will continue down the road, as evidenced in the Report, of suggesting that politicallyunpopular methods of recovering such contributions  XN-(i.e., line items on consumer telephone bills) somehow amount to fraud or misrepresentation. Clearly, carriers should not be allowed to commit fraud or misrepresentation. Yet I am hesitant to suggest that carriers are guilty of these offenses simply because they inform their customers that a component of their bills will be used to recover contributions mandated by the government. To the extent we are, as a practical matter, scrutinizing statements and line items on bills to pressure carriers into hiding from the customer support mechanisms that the Act requires be made explicit, I must respectfully object. I also must object to the notion, implicit in some calls for scrutiny of carriers' bills, that carriers commit misrepresentation if they do not indicate that they have benefited from access reductions at the same time they make their recovery of universal service contributions explicit on customer bills.  "<&W0*(($"Ԍ X-XxI seriously question the Report's suggestion that the starting point for determining the appropriate level of funding for the Schools and Libraries program should be an assumption that all reductions in access charges be used to fund that program. The Commission should acknowledge that the Act's addition of various universal service programs to the traditional high cost, low income and other programs will require the overall amount of universal service subsidies to rise relative to the sum of implicit and other subsidies that existed prior to the Act's passage. At the very least, we should expect that carriers will seek to recover their contributions to these additional, new programs from their customers. Indeed, I believe it would be inconsistent with the statutory mandate that universal service support be made explicit if the Commission were to formally or informally attempt to force carriers to conceal from customers the recovery of costs attributable to governmentmandated programs. The Act mandates that we compensate for reductions in implicit access charges by adding explicit universal service subsidies. Consequently, "access charge  X -reductions" cannot be viewed as a quid pro quo for lowering or eliminating the amounts carriers recover as explicit line items on customers bills. Moreover, I  X{-seriously question the validity of tying the funding level of any of our universal service programs to reductions in access charges.   X8-XxI also am concerned that a sizeable portion of demand for the Schools and Libraries program is attributable to discounts for internal connections and  X -Internet access, which the Commission is not required to fund as advanced services pursuant to section 254(h); rather, the Commission could decide to postpone funding internal connection and Internet access discounts temporarily or indefinitely. (It is noteworthy that, had the Commission decided not to fund internal connections and Internet access at this time, funds collected for the first 6 months of 1998 would likely cover the demand by schools and libraries for discounted telecommunications services.)   XT-XxI would support limiting the revenue base of the Schools and Libraries program to interstate revenues. I remain unconvinced that there is a principled basis for assessing contributions based on both intrastate and interstate revenues for that program, while limiting assessment of contributions for other universal service programs to interstate revenues.   X -XxI am not yet persuaded that, contrary to the analysis of the General Accounting Office, the Commission acted lawfully in directing that NECA establish the Schools and Libraries Corporation and the Rural Health Care Corporation as a condition of its appointment as temporary administrator. Under the Government Corporation Control Act, "[a]n agency may establish or acquire a corporation to act as an agency only by or under a law of the United States specifically authorizing the action." 31 U.S.C.  9102. To my knowledge, no law specifically authorizes the Commission to establish corporations, and I find")'W0*((%" arguments that the Commission merely directed the establishment of the corporations as a condition of appointment unavailing. If there is a distinction  X-between directing the establishment of the corporations as a condition of  X-appointment and establishing the corporations outright, it appears to be a distinction without a meaningful difference.  I also note that Commissioner FurchtgottRoth raises additional, serious concerns in his statement dissenting from this Report. Had the Commission's internal processes afforded me more of an opportunity to engage with my colleagues regarding the contents of this Report, I might have been persuaded that there are equally valid arguments in opposition to the criticisms I highlight above. Regrettably, that opportunity was never presented. xAs I stated in my statement for the April 10, 1998 Report to Congress, I fear that support for these beneficial programs will erode among both legislators and the general public  X -if we cannot find a way to make critics in Congress and elsewhere believe that we are working to preserve and advance universal service in a prudent and responsible manner. With the issuance of this Report, I regret that we pass up yet another opportunity to foster such belief, in part, because we failed to allow for full consideration of this matter by the entire Commission.