July 11, 1997 RE: Rules Setting Discounts for Certain Services to Schools and Libraries: Notice of Intent to Adopt Emergency Rules Notice of Opportunity to Comment on Proposed Emergency Rules Notice of Opportunity to Comment on Preproposal Statement of Inquiry Docket No. UT-970317 TO ALL INTERESTED PERSONS: On May 8, 1997, the Federal Communications Commission (FCC) released its Report and Order, FCC Order No. 97-157, (FCC Order) implementing key portions of Section 254 of the Telecommunications Act of 1996 (the Federal Act), which addresses universal service. Among other matters, the order identified services to be supported by federal universal service funding and the mechanisms whereby such funding will be provided. Discounts on telecommunications services and certain non-telecommunications services for schools and libraries are among the items earmarked for federal funding. The FCC Order provides for funding of both interstate and intrastate services for schools and libraries. The Federal Act provided that the FCC set the discounts for such interstate services for schools and libraries and reserved to the States the authority to set such discounts for intrastate services. The purpose of this rulemaking proceeding is to set those intrastate discounts pursuant to the Commission’s authority over such intrastate rates and practices of telecommunications companies The Commission is initiating the permanent rulemaking process with the filing of a Notice of Intent to Adopt Rules (Code Reviser form CR-101 - Preproposal Statement of Inquiry) pursuant to RCW 34.05.310. A CR-101 form is attached to this Notice as Appendix A. However, the FCC Order setting federal discounts and the parameters for the intrastate discounts was not issued until May 8 and was not published in the Federal Register until June 17, 1997. The intrastate discounts must be set immediately in order to permit Washington State schools and libraries to receive the available funds, it is appropriate under RCW 34.05.350 for the Commission to adopt emergency rules pending the final permanent rule adoption. A copy of the proposed emergency rule is attached to this letter as Appendix B. A Commission Staff discussion paper regarding the issues presented to the Commission in this matter is Appendix C to this Notice. TIME FOR COMMENT Emergency Rule: In order to allow sufficient time for the schools and libraries to apply for funds for the 1997-1998 school year, an expedited process is necessary for consideration of the proposed emergency rule. The Commission will consider the proposed emergency rule for adoption on July 30, 1997, at the regularly scheduled Commission open public meeting, which begins at 9:00 a.m. Should any person wish to comment on the proposed emergency rule, he or she may submit comments in writing to be received no later than 5:00 p.m. on Friday, July 25, 1997. There will be an opportunity for oral comment on July 30, 1997, at the Commission open public meeting as well. Permanent Rules -- Preproposal Statement of Inquiry (CR-101). The Preproposal Statement of Inquiry is attached. Oral and written comments that are made regarding the proposed emergency rule will also be considered in conjunction with the preproposal statement of inquiry. Written comments on the preproposal statement may be submitted until August 15, 1997. Questions may be addressed to Thomas Wilson, Commission staff member, at (360) 586-1194 or via electronic mail at . Sincerely, STEVE McLELLAN Secretary NEW - WAC 480-123-010 For purposes of schools and libraries receiving federal universal service funding under 47 CFR, Part 54 of the Federal Communications Commission rules, the following discounts shall apply: SCHOOLS AND LIBRARIES DISCOUNT MATRIX DISCOUNT LEVEL HOW DISADVANTAGED? urban rural discount discount % of students eligible for (%) (%) national school lunch program <1 20 25 1-19 40 50 20-34 50 60 35-49 60 70 50-74 80 80 75-100 90 90 Modification to existing WAC 480-120-027 The following new section (5) is added to WAC 480-120-027: (5) Federal universal service contracts with schools and libraries pursuant to 47 CFR, Part 54. When a telecommunications company enters into a contract to provide competitively classified service to a school or library as part of the federal universal service program, the telecommunications company must file the contract if the rates, terms or conditions of the prediscounted contract service depart from the tariff. The contract must be filed immediately upon acceptance by the administrator of the federal universal service program for schools and libraries. The filing must include the same documentation required for approval by subsection (3) (b) of this section. Modification to existing WAC 480-80-330 The following new section (8) is added to WAC 480-80-330: (8) Federal universal service contracts with schools and libraries pursuant to 47 CFR, Part 54. When a telecommunications company enters into a contract to provide service to a school or library as part of the federal universal service program, the telecommunications company must file the contract if the rates, terms or conditions of the pre-discounted contract service depart from the tariff. The contract must be filed immediately upon acceptance by the administrator of the federal universal service program for schools and libraries. The filing must include the same documentation required for approval by subsection 5 of this section. COMMISSION STAFF MEMORANDUM RE: Emergency and Permanent Rulemaking Services provided to eligible schools and libraries Docket No. UT-970317 The Commission Staff has analyzed the issues relating to this matter. Its analysis is as follows: BACKGROUND On May 8, 1997, the Federal Communications Commission (FCC) released its Report and Order, FCC Order No. 97-157, (FCC Order) implementing key portions of Section 254 of the Telecommunications Act of 1996 (the Federal Act), which addresses universal service. Among other matters, the order identified services to be supported by federal universal service funding and the mechanisms whereby such funding will be provided. Discounts on telecommunications services and certain non-telecommunications services for schools and libraries are among the items earmarked for federal funding. The FCC Order provides for funding of both interstate and intrastate services for schools and libraries. The Federal Act provided that the FCC set the discounts for such interstate services for schools and libraries and reserved to the States the authority to set such discounts for intrastate services. The purpose of this rulemaking proceeding is to set those intrastate discounts pursuant to the Commission’s authority over such intrastate rates and practices of telecommunications companies Eligibility for the discounts is predicated upon adoption by the states of the federal discount levels for intrastate services. While the FCC adopted rules that will permit schools and libraries to begin using the discounted services on January 1, 1998, they may begin applying for funding in the fall of 1997. DISCUSSION The Federal Act requires that states establish intrastate discounts on designated services provided to eligible schools and libraries. Specifically, the Act states: All telecommunications carriers serving a geographic area shall, upon a bona fide request for any of its services that are within the definition of universal service under subsection (c)(3), provide such services to elementary schools, secondary schools, and libraries for educational purposes at rates less than the amounts charged for similar services to other parties. The discount shall be an amount that the [FCC], with respect to interstate services, and the States, with respect to intrastate services, determine is appropriate and necessary to ensure affordable access to and use of such services by such entities. 47 U.S.C. § 254(h)(1)(b) While section 254(h)(1)(b) of the Act permits the states to determine the level of discount available to eligible schools and libraries with respect to intrastate services, the FCC states in paragraph 129 of its Order that the Act does nothing to prohibit federal funding of such intrastate discounts, nor does it prohibit conditioning that funding on state adoption of the federal discount levels. Accordingly, the FCC has decided to exercise its authority to provide federal universal service support for intrastate discounts. The participating entities will be compensated for the discounts provided to schools and libraries completely through the federal universal fund. Therefore, there is no state law conflict or inconsistency with the Federal Act or with the FCC’s Order regarding discounts for schools and libraries. The federally adopted discounts range from 20 percent to 90 percent for all telecommunications services, internet access, and internal connections, subject to a $2.25 billion annual cap. The range of discounts is correlated to the percentage of students in the school who are eligible for the national school free and reduced lunch program, and urban or rural location based on metropolitan statistical areas (MSAs). The following discount matrix has been adopted by the FCC: SCHOOLS AND LIBRARIES DISCOUNT MATRIX DISCOUNT LEVEL HOW DISADVANTAGED? urban rural discount discount % of students eligible for (%) (%) national school lunch program <1 20 25 1-19 40 50 20-34 50 60 35-49 60 70 50-74 80 80 75-100 90 90 In the proposed emergency rule, the Commission proposes to adopt on an intrastate basis the same discount matrix which the FCC has adopted for interstate services. The Commission finds the FCC’s discount matrix reasonable for several reasons. First, the FCC’s discount matrix is substantially the same as the recommendation of the Federal-State Joint Board convened in accordance with the Telecommunications Act of 1996 to provide such recommendations to the FCC. Second, the FCC’s discount matrix recognizes the benefits of greater discounts for more economically disadvantaged institutions as measured by a reasonable index, the school lunch program data. Thirdly, the FCC’s discount matrix also properly recognizes the benefits to rural communities of greater discounts. In the course of the proceeding to adopt permanent rules, the Commission will consider further whether the FCC matrix is appropriate for Washington intrastate discounts on a permanent basis. The FCC discounts are to be applied to a pre-discount price. According to the FCC, that price must be no higher than the lowest price the carrier charges to similarly situated non-residential customers for similar services. The pre-discount price is significant because it is the total price that carriers would receive for the services they sell to schools and libraries. While schools and libraries would only pay the carrier a discounted rate, the carrier would receive the amount of the discount from universal service support mechanisms. Therefore, the pre-discount price is the price of most significance to providers of services to schools and libraries. The pre-discount price is also highly significant to schools and libraries because they must pay the undiscounted portion of the price. The FCC believes that this will give schools and libraries a strong incentive to secure the lowest pre-discount price. For the purposes of the emergency rule, the Commission proposes to incorporate these federal requirements. In its Order, the FCC clarified that the tariffed rate of a carrier would represent a carrier’s lowest corresponding price in a geographic area in which that carrier has not negotiated rates that differ from the tariffed rate. The FCC is not requiring carriers to file new tariffs to reflect the discounts it has adopted for schools and libraries, but rather, discounts will be applied to existing tariff rates where appropriate. Commission Staff believes that this is appropriate for Washington carriers as well. Accordingly, for the emergency rule, Staff propose that the Commission not require that tariffs reflecting the discounts for schools and libraries be filed. WAC 480-80-330 requires that all contracts with end use customers for the retail sale of regulated intrastate telecommunications services which contain or state rates or conditions not in conformance with any applicable tariff or which provide for telecommunications services which are not specifically addressed in the telecommunications company’s published tariffs shall be filed with the Commission not less than 30 days prior to the proposed effective date of the contract. Given that the contracts developed pursuant to Title 47, Code of Federal Regulations, Part 54 will have been developed competitively, it is reasonable that the filing requirement for these contracts should be modified to permit the contracts to be filed immediately upon their acceptance by the administrator of the federal fund. The Commission retains jurisdiction over the pre-discount price of intrastate regulated services, therefore, these contracts should be filed accompanied by the same documentation as is normally required under WAC 480-80-330 (5). Therefore, the Commission also proposes to modify WAC 480-80-330 as shown in Appendix B. WAC 480-120-027 governs contracts for services classified as competitive, and for services offered by competitively classified telecommunications companies similarly to WAC 480-80-330. For the same reasons as those supporting modification of WAC 480-80-330, WAC 480-120-027 also needs to be modified, and the Commission proposes to make a similar modification. For services classified as competitive telecommunications services, it is reasonable that the filing requirements for contracts developed pursuant to the national universal service program for discounts to schools and libraries should be modified to permit the contracts to be filed immediately upon their acceptance by the administrator of the federal fund, rather than five days in advance of the proposed effective date of the contract as is currently required under the existing rule. Once again, the Commission retains jurisdiction over the pre-discount price of the intrastate regulated service, therefore, these contracts should be filed accompanied by the same documentation as is normally required under WAC 480-120-027 (3) (b). The adopted level of discounts will have no impact on the universal service assessments paid by Washington carriers. Those carriers, and through them the ratepayers of this state, will be major contributors to the federal universal service fund regardless of our action here. If the Commission did not adopt discounts, Washington schools and libraries would not be able to avail themselves of this opportunity. Instead, the funding would go to institutions in those states that do adopt the discounts for intrastate services. CONCLUSION Commission Staff recommends adoption of the proposed rules on an emergency basis pending completion of a permanent rulemaking process.