Federal Communications Commission FCC 07-150
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of
Comprehensive Review of the Universal 
Service Fund Management, Administration, 
and Oversight
Federal-State Joint Board on Universal 
Service
Schools and Libraries Universal Service 
Support Mechanism
Rural Health Care Support Mechanism
Lifeline and Link-Up
Changes to the Board of Directors for the 
National Exchange Carrier Association, Inc.
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WC Docket No. 05-195
CC Docket No. 96-45
CC Docket No. 02-6
WC Docket No. 02-60
WC Docket No. 03-109
CC Docket No. 97-21
REPORT AND ORDER
Adopted:  August 22, 2007 Released: August 29, 2007
By the Commission:
TABLE OF CONTENTS
Paragraph #
I. INTRODUCTION .....................................................................................................................1
II. BACKGROUND.......................................................................................................................2
III. DISCUSSION............................................................................................................................7
A. Strengthened Oversight .......................................................................................................9
1. Contributor Delinquencies.............................................................................................9
2. Annual Independent Audits .........................................................................................19
3. Document Retention Requirements.............................................................................22
4. Administrative Limitations Period ..............................................................................28
5. Recovery of Funds.......................................................................................................30
6. Debarment ...................................................................................................................31
B. Performance Measures.......................................................................................................34
1. Background..................................................................................................................34
2. Schools and Libraries ..................................................................................................38
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a. Connectivity...........................................................................................................40
b. Application Processing..........................................................................................44
3. Low-income.................................................................................................................50
4. Rural Health Care ........................................................................................................54
5. High-cost .....................................................................................................................55
6. USAC Administrative Performance Measures, not Program-Specific........................56
IV. PROCEDURAL MATTERS...................................................................................................58
A. Accessible Formats............................................................................................................58
B. Regulatory Flexibility Analysis .........................................................................................59
C. Paperwork Reduction Act Analysis...................................................................................60
D. Congressional Review Act ................................................................................................61
V. ORDERING CLAUSES..........................................................................................................62
APPENDIX A - List of Commenters
APPENDIX B - Final Regulatory Flexibility Analysis
APPENDIX C - Rules
I. INTRODUCTION
1. In this Report and Order, we adopt measures to safeguard the Universal Service 
Fund (“USF”) from waste, fraud, and abuse as well as measures to improve the management, 
administration, and oversight of the USF.  Specifically, 
· We strengthen oversight of the USF contributions process by requiring timely filing of 
Telecommunications Reporting Worksheets and timely payment of USF contributions.  
· We clarify current procedures and restructure the rate of interest under the Debt 
Collection Act of 1982 (“Public Law 97-365”) and the Debt Collection Improvement Act 
of 1996, (“Public Law 104-134”) as amended (the “DCIA”), that is imposed when 
contributors fail to make USF contributions on time and apply the same rate to 
contributors that fail to file properly the FCC Forms 499-A and 499-Q.
· We adopt document retention requirements and administrative limitation periods for the 
high-cost, low-income, and rural health care universal service programs. We also adopt 
document retention requirements for USF contributors.
· We adopt rules for recovery of improperly disbursed funds for the high-cost, low-income, 
and rural health care universal service programs.
· We revise our debarment rules to include parties who are convicted of criminal violations 
or held civilly liable for acts arising out of participation in the high-cost, low-income, and 
rural health care universal service programs.
· We adopt performance measures for the universal service programs and for the 
Administrator.
II. BACKGROUND
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2. A key goal of universal service is to ensure affordable telecommunications 
services to consumers living in high-cost areas, low-income consumers, eligible schools and 
libraries, and rural health care providers.1 Section 254 of the Communications Act of 1934, as 
amended (the “Act”), required explicit federal universal service mechanisms and enlarged the 
scope of the universal service program.  The universal service programs are funded by 
contributions from telecommunications carriers providing interstate telecommunications services
and from certain other providers of interstate telecommunications.  The Universal Service 
Administrative Company (“USAC”), a subsidiary of the National Exchange Carrier Association 
(“NECA”), a private not-for-profit corporation, was created to serve as the Administrator of the 
USF.
3. The USF consists of four programs:  (1) the universal service mechanism for high-
cost areas, providing financial support to eligible telecommunications carriers (“ETCs”) serving 
high-cost areas; (2) the universal service mechanism for schools and libraries (also known as the 
E-rate program), providing for discounted services (telecommunications services, Internet access, 
and internal connections) to eligible schools and libraries; (3) the universal service mechanism 
for low-income consumers, assisting low-income consumers with discounted installation and 
monthly telephone services; and (4) the universal service mechanism for rural health care, 
providing discounted telecommunications and information services to rural health care providers.
4. On June 14, 2005, we initiated a broad inquiry into the management, 
administration, and oversight of the USF.2  In this Report and Order, we address only a few of the 
issues raised in the Program Management NPRM. The remaining issues will be addressed in a 
subsequent Report and Order in this docket.  Our goal in this proceeding is to improve the 
universal service programs and to make the programs more effective and efficient.  We have 
sought input from all interested parties, including USF participants, in order to use their
experience to improve the various aspects of the management, administration, and oversight of 
the USF.  We are not evaluating the underlying policy considerations involved in administering 
the USF; instead, we are focusing on the mechanics of the programs.
5. As we discussed in the Program Management NPRM, the United States 
Government Accountability Office (“GAO”) has investigated USF issues, most recently in the 
schools and libraries program.3 One of the criticisms raised in the GAO 2005 E-Rate Report was 
that the Commission did not develop performance goals and measures of the E-rate program. 4  In 
this Report and Order, we discuss and adopt various performance measures for the universal 
service programs and the Administrator. We anticipate that the performance measures adopted 
  
1 See 47 U.S.C. § 254(b).
2 See Comprehensive Review of Universal Service Fund Management, Administration, and Oversight, WC Docket 
No. 05-195, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 20 FCC Rcd 11308 
(2005) (“Program Management NPRM”).  Appendix A contains the list of commenters to the Program Management 
NPRM.
3 GAO, Telecommunications, Greater Involvement Needed by FCC in the Management and Oversight of the E-Rate 
Program, GAO-05-151 (Washington, D.C.:  Feb. 9, 2005) (“GAO 2005 E-Rate Report”).  
4 See GAO 2005 E-Rate Report at 19-26 (criticizing the Commission for failing to develop useful performance goals 
and measures for the E-rate program).
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herein will be the first step in establishing comprehensive performance measurements and goals 
for the universal service program and the program Administrator.
6. The Commission has taken action in previous proceedings to detect and deter 
waste, fraud, and abuse of universal service funds.5 The measures we adopt in this Report and 
Order are part of our continuing process to deter misconduct and inappropriate uses of universal 
service funds.  We will continue to strengthen the universal service program by combating waste, 
fraud, and abuse.  We will also strive to improve this program through other means such as using 
relevant performance measures to assess the programs periodically.
III. DISCUSSION
7. In 1998, the Commission appointed USAC the permanent Administrator of the 
federal universal service support mechanisms.6  The Administrator performs numerous functions 
including, but not limited to, billing USF contributors, collecting USF contributions, disbursing
funds, recovering improperly disbursed funds, processing appeals of funding decisions, 
submitting periodic reports to the Commission, maintaining accounting records, conducting
audits of contributors and beneficiaries, and providing outreach to interested parties.7  The 
Administrator is prohibited from making policy, interpreting unclear provisions of the statute or 
the Commission’s rules, or interpreting the intent of Congress, and may only advocate positions 
before the Commission and its staff on administrative matters.8  
8. The Commission appointed USAC the permanent Administrator “subject to a 
review after one year by [the Commission] to determine that the Administrator is administrating 
the universal service support mechanisms in an efficient, effective, and competitively neutral 
manner.”9 The Commission intended to review USAC’s performance after one year; however, 
the one-year review did not take place.10  In the Program Management NPRM, we sought 
comment on whether modifications to our rules are needed to ensure efficient, effective, and 
competitively neutral administration of the USF.11 We also sought comment on how we could 
  
5 See, e.g., Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Fifth Report and 
Order and Order, 19 FCC Rcd 15808 (2004) (“Schools and Libraries Fifth Report and Order”); Federal-State Joint 
Board on Universal Service, CC Docket Nos. 96-45, 97-21, 02-6, Order on Reconsideration and Fourth Report and 
Order, 19 FCC Rcd 15252 (2004); Schools and Libraries Universal Service Support Mechanism, CC Docket No. 
02-6, Second Report and Order and Further Notice of Proposed Rulemaking, 18 FCC Rcd 9202 (2003) (“Schools 
and Libraries Second Report and Order”).
6 47 C.F.R. § 54.701(a); see Changes to the Board of Directors of the National Exchange Carrier Association, Third 
Report and Order in CC Docket No. 97-21, Fourth Order on Reconsideration in CC Docket No. 97-21 and Eighth 
Order on Reconsideration in CC Docket No. 96-45, 13 FCC Rcd 25058, 25069-70, ¶ 20 (1998) (“USAC 
Appointment Order”).
7 See 47 C.F.R. §§ 54.702(b)-(m), 54.711, 54.715.
8 47 C.F.R. §§ 54.702(c)-(d).
9 47 C.F.R. § 54.701(a).
10 See USAC Appointment Order, 13 FCC Rcd at 25069-70, ¶ 20. 
11 Program Management NPRM, 20 FCC Rcd at 11314, ¶ 11.
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otherwise improve the Commission’s oversight of the USF and management of the program.12  
 
A. Strengthened Oversight
1. Contributor Delinquencies
9. In the Program Management NPRM, the Commission sought comment on 
whether it should adopt rules requiring timely payments and assessing penalties or interest for 
late payments.13  The USF is supported by contributions from telecommunications carriers 
providing interstate services as well as contributions by certain providers of interstate 
telecommunications, including providers of Interconnected Voice over Internet Protocol 
(“Interconnected VoIP”) services.14  The Commission requires USF contributors to provide 
certain revenue information on the FCC Form 499-A and the FCC Form 499-Q 
(“Telecommunications Reporting Worksheet” or “Worksheet”) on a periodic basis.15  A USF 
contributor must file the FCC Form 499-Q to determine its USF contributions, subject to an 
annual true up based on the FCC Form 499-A.16  A contributor’s failure to file the Worksheets or 
its submission of inaccurate or untruthful information causes delay, denies the use of funds for 
their intended purposes, and results in additional administrative costs.  Our rules currently 
provide that such omissions or errors in the filing may result in an additional administrative 
assessment for “reasonable costs”17 incurred by the USF administrator and it “may subject the 
contributor to the enforcement provisions of the Act and any other applicable law.”18 USAC has 
implemented this authority by assessing a one-time charge equal to .005 percent of the annual 
revenue for a late-filed Worksheet; with a minimum assessment of $100 and a maximum of 
$5,000.  This corrective measure, however, does not provide sufficient incentive to contributors 
to comply with the reporting requirements, compensate the Administrator or the Commission for 
additional work involved, or compensate the universal service fund for the time value of money 
  
12 Id.
13 Id., 20 FCC Rcd at 11317, ¶ 19.  Currently, USAC assesses a late filing fee for both the Form 499-A and 499-Q 
and a late payment fee.  USAC Comments at 70.
14 The Commission adopted universal service obligations for providers of interconnected VoIP services in Universal 
Service Contribution Methodology, WC Docket Nos. 06-122 & 04-36, CC Docket Nos. 96-45, 98-171, 90-571, 92-
237, 99-200, 95-116, & 98-170, & NSD File no. L-00-72, 06-122, Report and Order and Notice of Proposed 
Rulemaking, 21 FCC Rcd 7518 (2006).
15 47 C.F.R. § 54.711.  Carriers file the quarterly worksheet, the FCC Form 499-Q, to show projected revenues.  
USAC bases a carrier’s universal service contributions on the carrier’s projected collected revenues. Carriers must 
submit their quarterly Worksheets no later than February 1, May 1, August 1, and November 1 of each year.  See
Quarterly Worksheet Form at 1.  Carriers must submit their Annual Worksheets no later than April 1 of each year.  
See Annual Worksheet Form at 1.  The complete filing schedule is also set forth in the instructions to the Annual 
Worksheet. 
16 Upon submission of a Form 499-A Worksheet, USAC issues a filer identification number to the carrier.  This 
number is used to track the carrier’s contributions and invoices.
17 47 C.F.R. § 54.713.  (“The Administrator may bill a contributor a separate assessment for reasonable costs 
incurred because of that contributor’s filing of an inaccurate or untruthful worksheet, failure to file a worksheet, or 
late payment of contributions.”)
18 Id. See http://www.universalservice.org/fund-administration/contributors/revenue-reporting/late-filing-fees.aspx.
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lost when the Worksheets are not filed and funds are not contributed in correct amounts.  In 
addition, as we discuss below, these administrative charges imposed for late-filed Worksheets, as 
well as charges for late payments, are not consistent with commercial practices,19 and may have 
become overly complex when considered together with other charges imposed for late payment.  
Accordingly, as we discuss below, we will replace the late-filing charge, as well as the late-
payment charges, with a new DCIA rate of interest that reflects the consequences of both types of 
failures and that is consistent with commercial practices, and designed to address the 
shortcomings we have identified in our current procedures.
10. The revenue information provided on the quarterly Worksheets determines each
entity’s contribution to the USF20 which is calculated according to the instructions for the 
Worksheets.21 Monthly, the USF Administrator bills each USF contributor, based on its quarterly 
contribution amount and the USF contribution is due by the date shown on the invoice.22  
Because our rules do not condition payment on receipt of an invoice, a carrier or other entity23
which has more than de minimis revenues and is not otherwise exempt from contributing, is still 
required to contribute to the USF in a timely manner, even if it does not receive an advance 
billing notice from the USF Administrator.24  Some USF contributors fail to make timely 
contributions and we are concerned that these failures harm the programs by denying the 
Administrator the use of the funds and by increasing the administrative costs of collecting the 
funds.  Since 2004, USAC has transferred 1,725 cases involving approximately $95.7 million 
worth of delinquent USF contributions to the Commission for collection action.25
11. USAC’s current practices are varied and perhaps incomplete.  USAC has 
implemented several measures to reduce contributor delinquency and pursue debtors with 
outstanding contribution obligations.26 Each month USAC notifies contributors that are 
delinquent and imposes late filing and late payment fees.27  In addition to the fee for late filing 
  
19 A debtor that makes a payment late in effect unilaterally receives an extension of credit, which may or may not be 
accompanied by financial consequences, depending on the relative actions by the creditor. 
20 See 47 C.F.R. § 54.709(a).
21 See “2006 FCC Form 499-A, Telecommunications Reporting Worksheet” at Instructions—page 1 “Instructions for 
Completing the Worksheet for Filing Contributions to Telecommunications Relay Service, Universal Service, 
Number Administration, and Local Number Portability Support Mechanisms,” http://www.fcc.gov/Forms/Form499-
A/499a-2006.pdf (“2006 Telecommunications Reporting Worksheet Instructions”).
22 47 C.F.R. § 54.711(a).   Contributors must pay by the due date shown on the invoice from the Administrator. 47 
C.F.R. § 54.711(a) (“The Commission shall announce by Public Notice published in the Federal Register and on its 
website the manner of payment and the dates by which payments must be made.”)  See, e.g., “Proposed Third 
Quarter 2006 Contribution Factor,” Public Notice, 21 FCC Rcd 6527 (Wireline Comp. Bur. 2006) (“Contribution 
payments are due on the dates shown on the invoice.”)
23 See 47 C.F.R. § 54.706(b).
24 Providers whose annual USF contribution would be less than $10,000 are considered de minimis and exempt from 
contributing to the USF.  47 C.F.R. § 54.708.
25 USAC Comments at 71.
26 USAC Comments at 68.
27 USAC Comments at 69.  USAC assesses a late payment fee for contributors who have made a late payment for the 
invoice two cycles prior; late payment fees are calculated based on the number of days late, the amount of the 
(continued….)
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described earlier, USAC applies a rate of interest, of seven percent, per year as a late payment fee 
based on the actual number of days by which payment is late, i.e., from the date the payment was 
due until the date the payment is received, and nine percent, applied later as the rate of interest in 
a promissory note to repay debt under an approved installment payment plan.  In imposing these 
interest rates USAC currently assesses contributors for reasonable costs incurred for the failure to 
file or pay on time;28 but does not assess DCIA interest or penalties29 in addition to these costs.30  
USAC mails 30, 60, and 90-day notifications to contributors who have previously submitted an 
FCC Form 499 but failed to submit subsequent FCC Form 499s.31 USAC also notifies 
contributors after a missed due date for filing the FCC Form 499.32  USAC states that it has a 
very low error rate in red light rule administration.33  In addition, the Commission’s Enforcement 
Bureau has taken enforcement action against carriers for failure to make USF contributions and 
failure to file annual and quarterly Worksheets.34  
12. Despite these measures, late filing and late payment persists.  Late-filed or 
inaccurate annual and quarterly Worksheets harm the USF because the Administrator and the 
Commission are unable to project accurately both the contribution base and the contribution 
factor. Contributor delinquencies in payment deprive the universal service support mechanisms 
of the funds necessary to carry out the program’s goals. The absence of a significant financial 
(Continued from previous page)    
outstanding balance, and an annual rate of seven percent. See http://www.universalservice.org/fund-
administration/contributors/paying-your-invoice/late-payment-fees.aspx. In addition, USAC’s form letter regarding 
delinquencies advises that interest will be charged on the unpaid principal balance at the rate of nine percent per 
annum. See http://www.universalservice.org/_res/documents/fund-
administration/pdf/Payment%20Extension%20Plans/PP-Acknowledgement-letter-template-SOL.pdf.
28 See 47 C.F.R. § 54.713.
29 31 U.S.C. § 3717.
30 USAC Reply Comments at 12.
31 USAC Comments at 69.
32 USAC Reply Comments at 15.
33 USAC Reply Comments at 17.  Delinquent debt owed to the Commission or the USF triggers application of the 
“red light rule” which requires offsets or holds on pending disbursements.  47 C.F.R. § 1.1910.  In 2004, the 
Commission adopted rules implementing the requirements of the DCIA. See Amendment of Parts 0 and 1 of the 
Commission’s Rules, MD Docket No. 02-339, Report and Order, 19 FCC Rcd 6540 (2004); 47 C.F.R. Part 1, 
Subpart O, Collection of Claims Owed the United States.  USAC contends that its error rate in red light rule 
administration was 0.11 percent of total payments from January 2005 to October 2005.  USAC Reply Comments at 
17.
34 See, e.g., Globcom, Inc. d/b/a Globcom Global Communications, Order of Forfeiture, 21 FCC Rcd 4710 (2006); 
Local Phone Services, Inc., Notice of Apparent Liability for Forfeiture, 21 FCC Rcd 9974 (2006); BCE Nexxia 
Corp., Notice of Apparent Liability for Forfeiture, 20 FCC Rcd 15121 (2005); Telecom Management, Inc., Notice of 
Apparent Liability for Forfeiture, 20 FCC Rcd 14151 (2005); Carrera Communications, LP, Notice of Apparent 
Liability for Forfeiture and Order, 20 FCC Rcd 13307 (2005); InPhonic, Inc., Notice of Apparent Liability for 
Forfeiture and Order, 20 FCC Rcd 13277 (2005); OCMC, Inc., Notice of Apparent Liability for Forfeiture, 20 FCC 
Rcd 14160 (2005); Teletronics, Inc., Notice of Apparent Liability for Forfeiture and Order, 20 FCC Rcd 13291 
(2005); Global Teldata II, LLC, Notice of Apparent Liability for Forfeiture and Order, 20 FCC Rcd 17264 (2005); 
Communication Services Integrated, Inc., Notice of Apparent Liability for Forfeiture and Order, 20 FCC Rcd 17251 
(2005).
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incentive to remedy late or inadequate payments shifts the resulting economic burden of the USF 
to the compliant contributors and to consumers to the extent that contributors pass-through their 
contribution assessments to end users,35 affording delinquent contributors an unfair competitive 
advantage over contributors that make payments on a timely basis.36 Moreover, the matrix of 
current fees and interest does not easily adapt to changes in commercial lending rates as 
demonstrated by USAC’s current seven percent rate for its late payment fee, which was adopted 
by USAC’s board in July 2006 and will remain in effect for two years or until otherwise changed 
by the board.  We are also concerned that this late payment fee does not compensate the USF for 
the loss of its use of the money.  In fact, because the seven percent late payment fee is lower than 
the U.S. prime rate, it may provide a disincentive to prompt payment while also failing to protect 
the government’s interest.  Moreover, the cost to both the Commission and USAC of monitoring 
the Worksheets and administering the panoply of collection and enforcement efforts and 
procedures are high and increasing, imposing an additional burden on human and capital 
resources of both the Commission and USAC that diverts limited valuable resources from other 
requirements.  For these reasons, we adopt a single standard to be used in assessing late fees. In 
so doing, our rules will provide that DCIA interest corresponds to commercial practices and that 
the interest and penalties accrue at the earliest time, and thereby ensure that the standard invokes 
a remedial, consistent, sanction necessary to encourage complete and timely payment and filing.
13. The DCIA interest and penalties will compensate the USF for the time value of 
money, 37 and also facilitate enforcement action against carriers who have substantial 
delinquencies.38 This will ensure, as well, that contributions to the USF are equitable and 
nondiscriminatory in that those who create additional administrative burdens will pay for them.  
Commenters addressing this issue agree and suggest that we should adopt reasonable 
administrative sanctions or interest for late-filed contributions and FCC Form 499s.39  
14. In addition, we have determined that a new DCIA interest rate higher than that 
Treasury rate currently assessed40 is appropriate.  Hence, under the rules we adopt today, we 
replace all late fees currently charged by USAC with the DCIA interest and penalties to be used 
in setting all remedial sanctions for late filing of USF work sheets and late payment of USF 
contributions.  If a contributor is more than 30 days delinquent in paying its contribution to the 
  
35 See 47 C.F.R. § 54.712.
36 Globcom, Inc., Notice of Apparent Liability for Forfeiture and Order, 18 FCC Rcd 19893, 19903, ¶ 26 (2003).
37 See 47 U.S.C. § 254(b)(4).
38 USAC Comments at 70.  
39 Alexicon Comments at 8; BellSouth Comments at 11; CPS Comments at 6; NJ Board Comments at 8; NTCA 
Comments at 9; OPASTCO Comments at 16-17 (contending that delinquent carriers should get a warning before 
interest or penalties are assessed); Qwest Comments at 14-15.  Commenters suggest that we adopt a “yellow light 
rule,” as an intermediate step to allow document reconciliation for 30 days, when the Commission’s records indicate 
that a carrier is delinquent. CenturyTel Comments at 3-6; NECA Comments at 21-22; USTelecom Comments at 8; 
Dobson Reply Comments at 23; NECA Reply Comments at 15-16; Qwest Reply Comments at 10-11; Sprint Reply 
Comments at 3; Verizon Reply Comments at 14. 
40 See 47 C.F.R. § 1.1940(b)(2).
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USF, USAC shall assess a single rate of interest,41 that will apply to the debt from the date of the 
delinquency until date of payment (or in the case of a promissory note the date of maturity of the 
note), at an annual rate equal to the U.S. prime rate on the date of delinquency plus 3.5 percent.42
Likewise, if a contributor is more than 30 days delinquent in filing an FCC Form 499-A or 499-
Q, the USF Administrator shall also use the U.S. prime rate plus 3.5 percent in assessing a 
remedial sanction. The sanction will be the greater of $100 per month or the amount derived 
when a rate of interest equal to the U.S. prime rate plus 3.5 percent is assessed on the amount due 
per the Administrator’s invoice or calculations (if no invoice was provided).43 In the event a 
contributor company is delinquent in filing an FCC Form 499-A or 499-Q, and within the 30 day 
period following delinquency, is also delinquent in paying its contribution, interest will be 
assessed on a single greater amount from the date of the first delinquency.44
15. The DCIA interest rate we impose is a permitted increase45 necessary to protect 
the government’s interest.  Interest rates, which compensate for the time value of money, may 
serve as incentives or disincentives to prompt payment.  For example, if the monetary sanction 
for a late payment of an existing obligation is less than the fee incurred in borrowing a similar 
amount from a commercial lender, there is incentive to delay paying the existing obligation.  
Comparing USAC’s existing practice with those of commercial lenders that extend credit where 
the risk of loss to the lender is substantially less because the note is guaranteed, e.g., a loan 
guaranteed by the Small Business Administration, we note that the rates of interest in such loans 
  
41 See http://www.universalservice.org/fund-administration/contributors/paying-your-invoice/late-payment-fees.aspx; 
http://www.universalservice.org/_res/documents/fund-administration/pdf/Payment%20Extension%20Plans/PP-
Acknowledgement-letter-template-SOL.pdf.  This new, single interest rate remains unchanged even while the debt 
may be transferred from USAC to the FCC and thereafter to Treasury for further collection efforts, and it will also be 
the rate applied to the total amount that may become the principal debt in any promissory note in any subsequent 
installment payment plan.  As appropriate, the note may require a higher interest rate in the event of default. 
42 Currently, the U.S. prime rate (also referred to as the Wall Street Journal (“WSJ”) Prime), as reported by the 
WSJ’s bank survey is 8.25 percent.  The rate is based on the fed funds rate set by the Federal Reserve, and reflects 
the rate of interest charged for short-term loans for creditworthy customers.  Less creditworthy customers, as 
determined, in part, from their history of meeting financial obligations, may be charged correspondingly higher 
interest rates.
43 The Administrator may not have mailed an invoice to an entity that has not filed Worksheets at all.  Such 
companies, once discovered by the Administrator or the Commission, must file the unfiled Worksheets and pay the 
unpaid USF contributions, plus, under the rules we adopt today, any sanction plus other collection charges permitted 
by applicable law.  The minimum sanction of $100 will, in most cases apply to a company whose revenues are at or 
below the de minimis level, and a de minimis company that files only a Form 499-A.  In addition, the Commission 
may take enforcement action against such entities.  
44 Because the Form 499-A and Form 499-Q are due on the first day of a particular month (see footnote XX, above), 
and monthly contributions are due on the 15th day of the month, we anticipate that the failure to file the Worksheet 
and a subsequent failure to pay a contribution could result in separate interest assessments.  We do not intend to 
duplicate the interest assessment, but rather establish that interest will accrue on whichever amount is greater, 
beginning with the earlier of the date of the failure to file or pay.  
45 31 U.S.C § 3717(g)(1) (“This section [within the statute] does not apply -- (1) if a statute, regulation required by 
statute, loan agreement, or contract . . . explicitly fixes the interest or charges . . . .”); 31 C.F.R. § 901.9 (“Pursuant to 
31 U.S.C. 3717, an agency may charge a higher rate of interest if it reasonably determines that a higher rate is 
necessary to protect the rights of the United States.”)  As noted herein, USAC’s current interest rate and the rate 
suggested in 31 U.S.C. § 3717 are measurably low and act as a disincentive to timely payment.  
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exceed the rate USAC applies to delinquent debtors.  Consequently, under existing practices, a 
creditworthy debtor repays a negotiated loan at a rate of interest higher than the interest rate 
imposed on a delinquent contributor.46 Thus, an imbalance develops such that it costs less for a 
contributor to become delinquent in paying the USF than to borrow a like amount from a 
commercial lender.  To remedy the imbalance, we base our threshold rate on the U.S. prime rate 
and add an additional rate of 3.5 percent. This additional rate includes consideration of the 
repayment risk, the time value of money, the cost of collection activities, and the need to instill in 
contributors the incentive to comply with requirements to complete the Worksheets and pay the 
contributions when due.  The higher rate of interest we adopt today provides greater protection of 
government interests than does a piecemeal application of interest under the current procedures, 
and the rate conforms to 31 U.S.C. § 3717(g)(1) and its implementing rules.  In addition, our 
Enforcement Bureau may pursue enforcement action against such delinquent contributor for this 
rule violation.47
16. Under the DCIA, we are required to impose interest on delinquent debts that 
remain unpaid more than 30 days, and penalties on delinquent debts that remain unpaid more 
than 90 days.48 Thus, in addition to DCIA interest at the higher rate of U.S. prime plus 3.5
percent assessed by USAC, delinquent contributors will remain obligated to pay penalties as well 
as any additional administrative costs of collection and other interest and administrative charges 
permitted by applicable law, as described in the next paragraph.49 Thus, for example, additional 
administrative charges are imposed under the DCIA, when an account is transferred to the United 
States Department of Treasury.50 We also adopt rules to codify the Administrator’s practice of 
  
46 A contributor-debtor that fails to pay its USF obligations when due effectively receives immediate credit without 
having to subject itself to routine commercial underwriting guidelines that include, e.g., consideration of credit 
worthiness, collateral and loan to value ratios, other credit lines, assets, and debt ratios.  We have compared the 
USAC interest rate with rates applied by commercial lenders participating in loan programs guaranteed by federal 
and/or state agencies, and we conclude the USAC interest rate imposed on a risky debtor is lower than the rate 
commercial lenders apply to loans guaranteed by the Small Business Administration.  We found that the commercial 
lender has less risk, but the rate of interest permitted on such guaranteed loans is higher than what is imposed by 
USAC.  We conclude, in part, that a contributor-debtor may perceive an incentive to resolve cash flow problems by 
delaying payment rather than to seek out a commercial lender.  For example, the commercial lender interest rate on a 
Small Business Administration-guaranteed “section 7(a)” loan is the WSJ Prime rate on the day of application plus 
(depending on the maturity date and loan amount) 2.25 percent to 4.75 percent.  The maximum interest rate of Prime 
plus 4.25 percent applies to a loan of less than $25,000 that matures in less than seven years.  See  
http://www.sba.gov/services/financialassistance/basics/sbarole/SERV_7A_INTRESTRATES.html.  In similar 
situations, some states will lend to small businesses, e.g., when the state of Montana loans funds, the interest rate 
depends on a combination of factors, but it is not less than the WSJ Prime plus three percent.  See
http://www.gatewayedc.org/BusinessFinance.htm.  
47 In any enforcement action, among the factors to consider would be the length of time the contributor was 
delinquent and whether the contributor made a good faith effort to resolve the delinquency with the Administrator 
through a payment plan.  
48 31 U.S.C. § 3717.
49 See 31 U.S.C. § 3717; 31 C.F.R. § 285.12(j).
50 Periodically, Treasury adjusts its administrative charges.  At present, Treasury assesses an administrative charge 
equal to 28 percent of the amount of the debt transferred.  
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applying delinquent payments to a contributor’s oldest past due amount.51 Specifically, we are 
adhering to the “American Rule” whereby payment is applied first to outstanding penalty and 
administrative cost charges, next to accrued interest, and third to outstanding principal.  Using 
this process, and applying a payment to the oldest outstanding principal, helps to keep to a 
minimum the number of accounts transferred under the DCIA for collection efforts by the 
Commission.52 Our actions today will also help clarify, for statute of limitations purposes, the 
amount of time a contributor’s debt is outstanding.
17. In addition to the rules we adopt herein, we require the Administrator to add 
information to the monthly invoice sent to contributors and in debt collection correspondence 
sent to delinquent debtors that explains the applicable sanction and administrative charges for 
late payment, i.e., under 31 U.S.C. § 3717 a delinquent debt that is not paid in full within 30 days 
from the due date will incur interest, and if not paid within 90 days from the due date will also 
incur a penalty; and, in addition, the delinquent contributor will be assessed the administrative 
costs of collection pursuant to section 54.713 of our rules.  Each monthly invoice should include 
the language pertaining to the DCIA, substantially as follows:
A failure to submit payment may result in sanctions, including, but not limited to, the 
initiation of proceedings to recover the outstanding debt, together with any applicable 
administrative charges, penalties, and interest pursuant to the provisions of the Debt 
Collection Act of 1982 (“Public Law 97-365”) and the Debt Collection Improvement Act 
of 1996, (“Public Law 104-134”) as amended (the “DCIA”), as set forth below.
The date of payment on the invoice is the due date.  If full payment is not received by the 
date due, the debt is delinquent.  Because the unpaid amount is a debt owed to the United 
States, we are required by the DCIA to impose interest and to inform you what may 
happen if you do not pay the full outstanding debt.  Under the DCIA, the United States 
will charge interest at the annual rate equal to the U.S. prime rate as of the date of 
delinquency plus 3.5 percent from the date the contribution was due. This interest rate 
incorporates administrative charges of collection pursuant to 47 C.F.R. § 54.713.  If the 
debt remains unpaid more than 90 days, you will be charged an additional penalty of 6 
percent a year for any part of the debt that is more than 90 days past due.  If the debt 
remains unpaid, the full amount of the outstanding debt may be transferred to the United 
States Department of Treasury (“Treasury”) for debt collection, and you will be required 
to pay the administrative costs of processing and handling a delinquent claim as set by the 
Treasury (currently 28 percent of the debt)   However, if you pay the full amount of the 
outstanding debt and associated administrative fees and penalties within 30 days of the 
due date, the DCIA interest will be waived.  These requirements are set out at 31 U.S.C. § 
3717.
  
51 See USAC Comments at 71. It is USAC’s practice to apply partial payments to the oldest debt carried on USAC’s 
books first, and not to the current billed amount.  See North American Telephone Network, LLC, Forfeiture Order, 
16 FCC Rcd 4838, ¶ 8 & n.12 (2001); Intellicall Operator Services, Forfeiture Order, 15 FCC Rcd 21771, 21772, ¶ 
6 and n.8 (2000). USAC contends that codification of this practice is not necessary.  USAC Reply Comments at 11. 
We choose to codify this practice so that all entities are aware of it and to clarify that this practice must be 
implemented in accord with the American Rule described herein.
52 See USAC Comments at 71.
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18. In addition to the above, the invoice shall state clearly the date that the invoiced 
amount is due, and if not paid in full on or before that date, the debt will be delinquent.  If the 
identified due date is a non-business date, the invoice will state clearly the date by which 
payment must be received to avoid delinquency.  Finally, an invoice sent after a partial payment 
should show clearly that the payment was applied to outstanding penalties, administrative costs, 
accrued interest, and then to oldest outstanding principal.  These changes will leave contributors 
with no doubt as to amounts owed and will encourage payment of delinquent debts.
2. Annual Independent Audits
19. Audits are a tool for the Commission and the Administrator, as directed by the 
Commission, to ensure program integrity and to detect and deter waste, fraud, and abuse.53  
Audits can reveal violations of the Act or the Commission’s rules.54 Commission rules authorize 
the Administrator to conduct audits of contributors to the universal service support 
mechanisms.55  USAC’s audit program consists of audits by USAC’s internal audit division 
(“IAD”) staff as well as audits by independent auditors under contract with USAC.56 In addition, 
the Commission’s OIG conducts audits of USF program beneficiaries.57  In the Program 
Management NPRM, we sought comment on whether the Commission should institute a targeted 
independent audit requirement to further safeguard the universal service program against waste, 
fraud, and abuse.58  For the reasons discussed below, we conclude that an additional audit 
requirement is unnecessary at this time.
20. We agree with the majority of commenters addressing this issue that an audit 
requirement can assist in deterring or uncovering waste, fraud, and abuse in the universal service 
programs.59  Greater frequency and intensity of independent audits in all programs would be 
  
53 Schools and Libraries Fifth Report and Order, 19 FCC Rcd at 15813, ¶ 13.  See also GAO 2005 E-Rate Report at 
31.
54 Schools and Libraries Fifth Report and Order, 19 FCC Rcd at 15813, ¶ 13.  
55 47 C.F.R. § 54.707 (“the Administrator shall have the authority to audit contributors and carriers . . . .”)  In 
addition, the USF Administrator is audited annually.  See 47 C.F.R. § 54.717.
56 47 C.F.R. § 54.516.  
57 KPMG LLP recently completed its last round of one hundred schools and libraries audits, under the OIG’s 
oversight.  Over $11 million in improper payments were identified and USAC is currently in the process of 
recovering these funds.
58 Program Management NPRM, 20 FCC Rcd at 11336-37, ¶ 68.
59 See, e.g., ALA Comments at 34; CCSSO Comments at 7-8; Dobson Comments at 14-15; GCI Comments at 31-32; 
GVNW Comments at 16-17 (observing that the audit sample should not contain a large number of small carriers); 
M-DCPS Comments at 16; NYSED Comments at 3; On-Tech Comments at 9; Qwest Comments at 35; AASA Reply 
Comments at 7; Dobson Reply Comments at 12.  Several commenters suggest that we assess USAC’s site visit 
program before imposing audit requirements.  See, e.g., ESPF Comments at 17; Kellogg Comments at 18.
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beneficial and reduce waste, fraud, and abuse.60 Waste, fraud, and abuse can occur in all of the 
universal service programs.61  
21. Since we released the Program Management NPRM, the Commission’s OIG has 
started overseeing 460 audits of contributors and beneficiaries of the high-cost, low-income, rural 
health care, and schools and libraries programs.62  The audits are designed to fulfill the 
requirements mandated by the Improper Payments Information Act of 2002 (“IPIA”).63 These 
audits, which have already begun, are conducted on a statistical sample of the beneficiaries of 
each of the four USF programs.64 These audits will provide a baseline from which the 
Commission can determine where targeted audits are necessary in the future.  We will continue 
to evaluate appropriate audit oversight for the USF program and expect that a rigorous audit 
program on a going forward basis will be implemented once the 460 audits are completed.
3. Document Retention Requirements
22. In the Program Management NPRM, we sought comment on whether we should 
adopt a document retention requirement for applicants and service providers in all USF 
programs.65 We adopted a five-year record retention requirement for the E-rate program in the 
Schools and Libraries Fifth Report and Order.66
23. Commenters suggest that fund recipients should be required to retain documents 
in accordance with normal business practices (e.g., seven years for tax purposes)67 or that records 
be retained only for two or three years.68 Commenters propose that the Commission not extend 
document retention requirements to the high-cost and low-income mechanisms because there is 
no evidence that a greater document retention requirement is necessary.69  We conclude that 
recordkeeping requirements not only prevent waste, fraud, and abuse, but also protect applicants 
and service providers in the event of vendor disputes.70  We clarify that we require that 
information necessary to determine compliance with this Commission’s rules and regulations be 
  
60 Alexicon Comments at 15.
61 For example, Cass County Telephone Company, a rural incumbent LEC in Missouri, was involved in defrauding 
USAC and NECA.  For a description of this incident, see MoPSC Comments at 5-7.
62 See Office of the Inspector General, Semiannual Report to Congress, Apr. 1, 2006 - Sept. 30, 2006 (“Sept. 2006 
Semiannual Report”) at 9.
63 Improper Payments Information Act of 2002, Pub.L.No. 107-300, 116 Stat. 2350 (2002).
64 Sept. 2006 Semiannual Report at 10.
65 Program Management NPRM, 20 FCC Rcd at 11342-43, ¶¶ 84-85.
66 See Schools and Libraries Fifth Report and Order, 19 FCC Rcd at 15823-24, ¶ 47; see also GAO 2005 E-Rate 
Report at 32 (“record retention is fundamental to an audit trail”).
67 GVNW Comments at 17-18.
68 Dobson Cellular Comments at 17. IDT contends that anything more than three years would be burdensome.  IDT 
Comments at 13; IDT Reply Comments at 10.
69 BellSouth Comments at 22-23; USTelecom Comments at 5; Verizon Comments at 29.
70 See Schools and Libraries Fifth Report and Order, 19 FCC Rcd at 15823-24, ¶ 47.  See also Program 
Management NPRM, 20 FCC Rcd at 11342, ¶ 83.
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available to the Administrator, its auditors, and Commission personnel upon request, for all USF 
programs.  We reach the following conclusions on document retention standards for the high-
cost, low-income, schools and libraries, and rural health care programs after reviewing each 
program individually:
24. High-cost program.  We will require recipients of universal service support for 
high-cost providers to retain all records that they may require to demonstrate to auditors that the 
support they received was consistent with the Act and the Commission’s rules, assuming that the 
audits are conducted within five years of disbursement of such support.71 These records should 
include without limitation the following: data supporting line count filings; historical customer 
records; fixed asset property accounting records; general ledgers; invoice copies for the purchase 
and maintenance of equipment; maintenance contracts for the upgrade or equipment; and any 
other relevant documentation.72  We clarify that beneficiaries must make available all such 
documents and records that pertain to them, including those of NECA, contractors, and 
consultants working on behalf of the beneficiaries to the Commission’s OIG, to the USF 
Administrator, and to their auditors.  Some commenters propose that we set document retention 
requirements for two to seven years;73 however, we conclude that five years, as proposed by 
USAC,74 and consistent with the rules we adopted for schools and libraries and rural health care 
providers, is a reasonable standard that will better serve the public interest.  The use of true-ups 
and documentation of historical costs inclines us to err on the side of a longer, rather than 
shorter, period. To the extent other rules or any other law require or necessitate documents be 
kept for longer periods of time (e.g., to support the account balances in the Part 32 Uniform 
System of Accounts, continuing property records, pole attachment calculations, plant equipment 
age, cost, or useful life, depreciation rates), we do not alter, amend, or supplant such rule or 
law.75 High cost program recipients must keep documents for such longer periods of time as 
required or necessary under such other rules or law and make such documents available to the 
Commission and USAC.
25. Low-income program.  With respect to the low-income universal service 
programs – Lifeline and Link-Up – we conclude that we should maintain the current two-tiered 
document retention requirements.76 Although some commenters propose durations of two to 
seven years,77 they do not offer good reasons for altering the existing three-year requirement. We 
  
71 Cf. the five-year statute of limitations for violations of section 220(d) of the Act.  47 C.F.R. § 1.80(c)(2).
72 These record retention requirements apply to all agents of the recipient, including, without limitation, NECA, and 
any documentation prepared for or in connection with the recipient’s high cost benefits.
73 See GVNW Comments at 17-18 (seven years); Dobson Comments at 18-19 (two years); NTCA Reply Comments 
at 6 (three years).  We also note that USTelecom opposes any expansion of current document retention standards, see
USTelecom Comments at 4-5.
74 See USAC Comments at 229-30.
75 See, e.g., 47 C.F.R. 32.2000.
76 47 C.F.R. § 54.417(a) (requiring maintenance of records for the three full preceding calendar years and requiring 
carriers to retain documentation for as long as the customer receives Lifeline service from the ETC or until audited 
by the Administrator).
77 See GVNW Comments at 17-18 (seven years); Dobson Comments at 18-19 (two years); NTCA Reply Comments 
at 6 (three years).
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also conclude that it is not unnecessarily burdensome to expect participating service providers to 
retain a record verifying the eligibility of a recipient of the program for as long as the recipient 
continues to receive supported service and three years more, and to make it available in 
conjunction with any audit to which it may be relevant.  We think that a three-year extension of 
the current standard is necessary to permit audits made of funding provided three years earlier.  
We also agree with USAC’s proposal that we remove the clause that waives the requirement to 
retain documentation of eligibility once an audit is completed.78  We conclude that requiring 
retention of this material even after audits are completed is in the public interest.  We find that 
the burden of requiring the material to be retained for three years after the subscriber terminates 
service is minimal.  Without this requirement, the Commission would have difficulty in 
completing future audits if substantial portions of the needed documentation were missing, 
particularly given that the eligibility of some subscribers to participate in the program may 
change multiple times. We also clarify that beneficiaries must make available all documents and 
records that pertain to them, including those of contractors and consultants working on their 
behalf, to the Commission’s OIG, to the USF Administrator, and to auditors working on their 
behalf.  
26. Rural health care and schools and libraries programs.  Based on this record, we 
conclude that we should retain the requirement that rural health care providers and schools and 
libraries retain for five years their records evidencing that the funding they received was proper.79
Although commenters suggest that we consider durations ranging from two to seven years,80 we 
find that the five-year requirement in place now for the rural health care program and the E-rate 
program, is reasonable and we see no good reason to modify it.  We also conclude that, just as 
the E-rate program five-year record retention rule also applies to service providers,81 this 
requirement should also apply to the service providers that receive support for serving rural 
health care providers.  After all, the danger of waste, fraud, and abuse by service providers is as 
great as the danger of such conduct by rural health care providers. We also clarify that 
beneficiaries must make available all documents and records that pertain to them, including those 
of contractors and consultants working on their behalf, to the Commission’s OIG, to the USF 
Administrator, and to their auditors.  
27. Contributors. We also require contributors to the USF to retain all documents and 
records that they may require to demonstrate to auditors that their contributions were made in 
compliance with the program rules, assuming that the audits are conducted within five years of 
such contribution.  We clarify that contributors must make available all documents and records 
that pertain to them, including those of contractors and consultants working on their behalf, to 
the Commission’s OIG, to the USF Administrator, and to their auditors.  These documents and 
records should include without limitation the following: financial statements and supporting 
documentation; accounting records; historical customer records; general ledgers; and any other 
relevant documentation.  We align this record retention requirement along the same lines as those 
  
78 See USAC Reply Comments at 96-97.
79 47 C.F.R. §§ 54.516(a), 54.619(a).
80 See GVNW Comments at 17-18 (seven years); Dobson Comments at 18-19; Dobson Reply Comments at 22.
81 47 C.F.R. § 54.516(a)(2).
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adopted for the schools and libraries, rural health care, and high-cost program beneficiaries, i.e., a 
five-year period.   
4. Administrative Limitations Period
28. In the Program Management NPRM, we sought comment on the establishment of 
an administrative limitations period in which the Commission or the Administrator will 
determine that a violation has occurred among recipients of funds from the high-cost, low-
income, and rural health care universal service support mechanisms.82  The administrative 
limitations period sets forth the time frame for audits and investigations.  In the Schools and 
Libraries Fifth Report and Order, we adopted a policy that any inquiries to determine whether 
statutory or rule violations occurred will be initiated and completed within a five-year period 
after final delivery of service for that funding year.83  A general policy in this area for all USF 
programs would provide these participants with some certainty of the time within which an audit 
or further review of funding may occur.  We emphasize that the administrative limitations period 
discussed here is not a statute of limitations for pursuing enforcement action or prosecuting a 
service provider or beneficiary.84  
29. Commenters suggest that the Commission should establish an administrative 
limitations period for audits and that any “normal” audit or investigation should be limited to a 
twelve-month period after the audit or investigation has commenced; if fraudulent activity is 
discovered, the twelve-month cycle could be waived or the audit extended.85 One commenter 
suggests that audits conducted on recipients of high-cost and low-income support should be 
subject to a period that is no longer than three years.86 We are not convinced that the 
administrative limitations period for these programs should be less than the period for the 
schools and libraries program.  We are therefore adopting a five-year standard for the other USF 
programs.  This time period appropriately balances the beneficiary’s need for finality and our 
need to safeguard the USF programs from waste, fraud, and abuse.
5. Recovery of Funds
30. In the Program Management NPRM, we sought comment on whether to establish 
specific rules or criteria to address instances in which a USF beneficiary may not have used funds
in accordance with program procedures.87 In addition, we sought comment on whether, 
consistent with the conclusions in the Schools and Libraries Fifth Report and Order, amounts 
disbursed from the high-cost, low-income, and rural health care support mechanisms in violation 
of the statute or Commission rule must be recovered in full.  Waste, fraud, and abuse of the USF 
programs harm all program participants by reducing the amount of available funds.  Consistent 
  
82 Program Management NPRM, 20 FCC Rcd at 11343-44, ¶¶ 86-88.
83 Schools and Libraries Fifth Report and Order, 19 FCC Rcd at 15818-19, ¶ 32.
84 We note, however, that under our rules a notice of apparent liability must be issued within five years of a violation 
of sections 202(c), 203(e), and 220(d) of the Act.  47 C.F.R. § 1.80.
85 GVNW Comments at 18; IDT Comments at 11; Dobson Reply Comments at 21-22.
86 USTelecom Comments at 5.
87 Program Management NPRM, 20 FCC Rcd at 11344, ¶ 89.
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with our conclusion regarding the schools and libraries program, funds disbursed from the high-
cost, low-income, and rural health care support mechanisms in violation of a Commission rule 
that implements the statute or a substantive program goal should be recovered.88  Sanctions, 
including enforcement action, are appropriate in cases of waste, fraud, and abuse, but not in cases 
of clerical or ministerial errors.89   
6. Debarment
31. There have been several well-publicized cases of fraud against the schools and 
libraries program.90 In order to prevent fraud, and to prevent bad actors from continuing to 
participate in this program, the Commission adopted a debarment rule.  The Commission’s 
current debarment rule provides that the Commission shall suspend and debar parties from the E-
Rate program who are convicted of criminal violations or held civilly liable for acts arising out of 
participation in the schools and libraries program, absent extraordinary circumstances.91  
Debarment is for three years, although the rules contemplate that the Commission might modify 
the period in particular circumstances; the Commission might lengthen the period if necessary to 
protect the public interest92 and it might reverse or limit the scope or period of debarment “upon a 
finding of extraordinary circumstances.” 93 Several parties have been debarred under this rule by 
our Enforcement Bureau or the Commission.94  
  
88 Schools and Libraries Fifth Report and Order, 19 FCC Rcd at 15815, ¶¶ 18-30 (examples of rule violations for 
which recovery should be sought).
89 See, e.g., AEWG Comments at 13; GVNW Comments at 18; Trillion Comments at 7; USTelecom Comments at 7; 
see also Request for Review of the Decision of the Universal Service Administrator by Bishop Perry Middle School, 
et al., Schools and Libraries Universal Service Support Mechanism, File No. SLD-487170, CC Docket No. 02-6, 
Order, 21 FCC Rcd 5316 (2006) (“Bishop Perry Order”).
90 See, e.g., “Waste, Fraud, and Abuse Concerns with the E-Rate Program,” Subcommittee on Oversight and 
Investigations, Bipartisan Staff Report for the use of the Committee on Energy and Commerce (Oct. 18, 2005) 
(discussing substantial waste of E-rate funds in the Puerto Rico school system; fraud committed by the San Francisco 
Unified School District employees and NEC Business Network Solutions, Inc.; wasteful funding for the El Paso 
Independent School District; improper stockpiling of $8.5 million worth of E-rate program inventory purchased by 
the Chicago Public Schools from SBC Telecommunications; and improper stockpiling of more than $4.5 million in 
E-rate program inventory by the Atlanta Public Schools ).
91 47 C.F.R. § 54.521(b).
92 47 C.F.R. § 54.521(g).
93 47 C.F.R. § 54.521(f).
94 See, e.g., Letter from Maureen F. Del Duca, Chief, Investigations and Hearings Division, Enforcement Bureau, to 
Oscar Alvarez, Connect2 Internet Network, Inc., Notice of Debarment, 18 FCC Rcd 16668 (2003); Letter from 
Maureen F. Del Duca, Chief, Investigations and Hearings Division, Enforcement Bureau, to John Angelides, 
Connect2 Internet Network, Inc., Notice of Debarment, 18 FCC Rcd 26722 (2003); Letter from Maureen F. Del 
Duca, Chief, Investigations and Hearings Division, Enforcement Bureau, to Duane Maynard, Howe Electric, Inc., 
Notice of Debarment, 18 FCC Rcd 26729 (2003); Letter from William H. Davenport, Chief, Investigations and 
Hearings Division, Enforcement Bureau, to John Dotson, Notice of Debarment, 19 FCC Rcd 23636 (2004); Letter 
from William H. Davenport, Chief, Investigations and Hearings Division, Enforcement Bureau, to John Henry 
Weaver, Notice of Debarment, 20 FCC Rcd 10925 (2005); Letter from William H. Davenport, Chief, Investigations 
and Hearings Division, Enforcement Bureau, to Haider Bokhari, Notice Debarment, 20 FCC Rcd 10941 (2005); 
Letter from William H. Davenport, Chief, Investigations and Hearings Division, Enforcement Bureau, to Qasim 
(continued….)
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32. In the Program Management NPRM, we tentatively concluded that we should 
establish more aggressive sanctions and debarment procedures in all universal service
programs.95 We adopt our tentative conclusion.  Debarment of applicants, service providers, 
consultants, or others who have defrauded the USF is necessary to protect the integrity of the 
universal service programs.96 We do not find any reason to exclude the high-cost, rural health 
care, or low-income programs from our debarment rules.  Parties who are convicted of criminal 
violations or held civilly liable for acts arising out of participation in those programs should be 
treated in the same manner as parties who are convicted of criminal violations or held civilly 
liable for acts arising out of participation in the schools and libraries program.  For these reasons, 
we adopt our tentative conclusion to expand the scope of the debarment process to include all 
USF programs.97  Therefore, we revise our rules to include debarment from all USF programs for 
parties convicted of or held civilly liable for, the commission or attempted commission of fraud 
and similar offenses.  In addition, we also agree with the commenters proposing that the debarred 
entities should be listed on the Commission’s and the Administrator’s website.98  The USF 
Administrator should provide a link from its website to the Bureau and Commission debarment 
orders listed on our website.
33. The Program Management NPRM and the Schools and Libraries Second Report 
and Order also requested comment on other options for improving and extending application of 
the debarment rules now applicable only to the E-Rate program.  Comment was requested on 
various issues, including the advisability of adopting the government-wide non-procurement 
debarment rules, procedures to address debarment or other sanctions for willful or repeated 
violations, the types of violations that should trigger debarment or other sanctions, and 
procedures to notify schools and libraries of which entities have been debarred.99  To the extent 
that these issues, and others raised in those orders, are not addressed here, we plan to address 
them in a subsequent order. 
(Continued from previous page)    
Bokhari, Notice of Debarment, 20 FCC Rcd 10931 (2005); Letter from William H. Davenport, Chief, Investigations 
and Hearings Division, Enforcement Bureau, to Ronald R. Morrett, Notice of Debarment, 20 FCC Rcd 14321 
(2005); Inter-Tel Technologies, Inc., Notice of Debarment, 21 FCC Rcd 7506 (2006); NEC Business Network 
Solutions, Inc., Notice of Debarment and Order Denying Waiver Petition, 21 FCC Rcd 7491 (2006); Premio, Inc., 
Notice of Debarment, 22 FCC Rcd 1019 (2007); NextiraOne, LLC, Notice of Debarment and Order Denying Waiver 
Petition, 22 FCC Rcd 1005 (2007).
95 Program Management NPRM, 20 FCC Rcd at 11348, ¶ 98.
96 Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Second Report and Order and 
Further Notice of Proposed Rulemaking, 18 FCC Rcd 9202, 9225, ¶ 66 (2003).
97 Commenters addressing this issue agreed with our tentative conclusion.  See, e.g., AASA Comments at 18; CPS 
Comments at 29; Dobson Comments at 19-20; ESPF Comments at 21 (contends that the Commission should conduct 
a separate rulemaking on this issue); GCI Comments at 36; OIG Comments at 8.
98 CGCS Comments at 12; CPS Comments at 28; EdLiNK Comments at 22; Kellogg Comments at 22; NYSED 
Comments at 4.  
99 Program Management NPRM, 20 FCC Rcd at 11348, ¶¶ 97-98; Schools and Libraries Second Report and Order, 
18 FCC Rcd at 9235, ¶¶ 102-115.
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B. Performance Measures
1. Background
34. The Government Performance and Results Act (“GPRA”) of 1993100 established 
statutory requirements for federal agencies to engage in strategic planning and performance 
measurement.  GPRA is intended to improve efficiency and effectiveness of federal programs 
through the establishment of specific goals for program performance. GRPA has three main 
requirements.  Federal agencies must develop strategic plans with long-term, outcome-related 
goals and objectives,101 develop annual goals linked to the long-term goals,102 and measure 
progress toward the achievement of those goals in annual performance plans and report annually 
on their progress in program performance reports.103
35. In recent years, the Office of Management and Budget (“OMB”) has built upon 
GPRA through its Program Assessment Rating Tool (“PART”).  OMB’s PART guidance sets 
forth three types of performance measures:  outcome measures, output measures, and efficiency
measures.104 Outcome measures “describe the intended result from carrying out a program or 
activity.”105 Output measures describe the level of activity, such as applications processed, 
number of housing units repaired, or number of stakeholders served by a program.  Efficiency 
measures capture a program’s ability to perform its function and achieve its intended results 
relative to the resources expended.106 These performance measurements should be intrinsically 
linked to the purpose of the program and the strategic goal to which it contributes.107 The GAO 
has also published a number of reports addressing the use of performance measures in the 
management of government programs.108  
36. In the GAO 2005 E-Rate Report, the GAO observed that the Commission was 
responsible under GPRA for establishing the E-rate program’s long-term strategic goals and 
annual goals, despite the fact that the Act does not include specific goals for the universal service 
  
100 Government Performance and Results Act of 1993, Public Law No. 103-62.
101 5 U.S.C. § 306.  
102 Id.; 31 U.S.C. § 1115.  
103 31 U.S.C. §§ 1115 – 1116.  
104 See Memorandum from Clay Johnson III, Deputy Director for Management, Office of Management and Budget, 
to Program Associate Directors, Budget Data Request No. 04-31 (Mar. 22, 2003) (“OMB PART Guidance 
Memorandum”); http://www.whitehouse.gov/omb/part/index.html.  The most current PART guidance, referred to 
herein as “2007 PART Guidance,” is:  http://www.whitehouse.gov/omb/part/fy2007/2007_guidance_final.pdf.
105 See 2007 PART Guidance at 8.
106 The 2007 PART Guidance states that “[m]eaningful efficiency measures consider the benefit to the customer and 
serve as indicators of how well the program performs.”  Id. at 10.
107 Id. at 8-9.
108 See, e.g., Government Accountability Office, Effectively Implementing the Government Performance and Results 
Act (Jun. 1996); Results-Oriented Government: GPRA Has Established a Solid Foundation for Achieving Greater 
Results, GAO-04-38 (Mar. 2004); Managing For Results:  Enhancing Agency Use of Performance Information for 
Management Decision Making, GAO-05-927 (Sept. 2005).
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programs.109 In the Program Management NPRM, the Commission sought comment on 
establishing useful outcome, output, and efficiency measures for the USF mechanisms, as well as 
for the administration of the program.110 Below, we adopt performance measures for each USF 
mechanism.  As we describe in more detail below, we adopt certain outcome measurements for 
ascertaining the program goal of connectivity by determining the level of connectivity in schools 
and libraries.  We also adopt output measurements for evaluating the effectiveness of the four 
USF programs.  We adopt certain output measurements for reviewing the performance of the 
USF Administrator in a more general way, apart from the administration of each program.  We 
anticipate increasing our performance measures and adopting goals for the USF programs as we, 
and the USF Administrator, gain experience with these measurements.
37. Except as otherwise provided, performance measurements for the schools and 
libraries and rural health care programs must be reported to the Commission by the 
Administrator on an annual basis; all other performance measurements must be reported to the 
Commission on a quarterly basis, at the time of the contribution factor filing.  No later than at 
each filing date, the USF Administrator shall also update past filings for any errors or new data.  
For material errors, as defined by the Commission, the USF Administrator shall notify the 
Commission’s Chief Financial Officer (“CFO”) and update filings within 72 hours of the 
notification to the CFO.
2. Schools and Libraries 
38. A critical goal of our universal service program is to increase access to advanced 
telecommunications services and ensure that affordable telecommunications services are 
available and accessible to underserved segments of our society, including eligible schools and 
libraries, low-income consumers, rural health care providers, and consumers living in high-cost 
areas.111 As we discussed in the Program Management NPRM, the statutory goal of the schools 
and libraries program is to ensure the delivery of affordable telecommunications and advances 
services to eligible schools and libraries for educational purposes.112 With respect to Internet 
access, there is nearly 100 percent connectivity for public schools.113 According to the National 
Center for Education Statistics (“NCES”), by 2005, nearly 100 percent of public schools in the 
United States had Internet access.114 In 2005, 94 percent of public school instructional 
  
109 GAO 2005 E-Rate Report at 19.
110 Program Management NPRM, 20 FCC Rcd at 11318-322, ¶¶ 24-31.
111 47 U.S.C. § 254(b).
112 Program Management NPRM, 20 FCC Rcd at 11319-320, ¶ 26, citing 47 U.S.C. § 254(h).
113 This includes schools that received E-Rate funding and those that did not.  See GAO 2005 E-Rate Report at 21.  
Due to this high level of connectivity, simple measures of Internet connectivity will not be a useful indicator of the 
E-rate program’s performance.  Id. at 25.
114 “Internet Access in U.S. Public Schools and Classrooms:  1994-2005,” U.S. Dept. of Education, Institute of 
Education Sciences, NCES 2007-020, at 4.  There have been virtually no differences in the number of public schools 
with Internet access since 1999.  Id.
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classrooms had Internet access, compared with three percent in 1994.115 In addition, 97 percent 
of the public schools with Internet access used broadband connections to access the Internet.116  
39. We agree with the commenters that the Commission should further measure the 
level of connectivity.117 Commenters suggest, and we agree, that the Commission is not in a 
position to evaluate the impact of E-rate funds on connectivity as compared to other funding 
sources.118 We also agree with the commenters that it would be difficult to try to determine the 
impact of E-rate funds, as opposed to other funds, on learning.119 As the commenters observe, 
there are too many variables involved in educational achievement; Internet access is but one of 
many educational resources for students and teachers.120  We do not have sufficient data at this 
time to establish goals for these performance measures.  The performance measures we adopt 
should help us improve the productivity and efficiency of the E-rate program.  We will continue 
to review this area and evaluate the effectiveness of the measures we adopt today.
a. Connectivity 
40. USAC has initiated a program of “site visits” to USF beneficiaries.121 The site 
visits include a physical inspection of equipment and services purchased with E-rate funds.  
USAC observes that the contractor already requests specific information about schools’ and 
libraries’ connectivity during site visits and during audits.122 We recognize that the results from 
these site visits and audits will not be statistically valid; they will, however, provide us with 
useful information about a large percentage of the program applicants that can be used to 
improve the program or the application process.  Therefore, the USF Administrator should 
provide us with a summary of the connectivity issues discussed during site visits. 
  
115 Id.  Broadband connections included T3/DS3, fractional T3, T1/DS1, fractional T1, and cable modem 
connections.  Id. at note 1.
116 Id. at 5.
117 ALA Comments at 32; CCSSO Comments at 3-4; Council Comments at 10; CPS Comments at 9; EdLiNC 
Comments at 10-12; ESPF Comments at 4-5; ISTE Comments at 8; Kellogg Comments at 5 (information about the 
technology installed is collected in the Form 471, Block 3); LAUSD Comments at 3; M-DCPS Comments at 16; NJ 
Board Comments at 10; NREAC Comments at 2-3; NYSED Comments at 3; PSTC Comments at 3; SECA 
Comments at 63-66; USAC Comments at 85; WVDE Comments at 3-4; AASA Reply Comments at 3; ISTE Reply 
Comments at 7-17 (recommends one gigabit connections in schools within the next three to five years).
118 See, e.g., AASA Comments at 8; CDE Comments at 5; CPS Comments at 10; Wisconsin Comments at 4.
119 See, e.g., WVDE Comments at 3-4; AASA Reply Comments at 3-4; ISTE Reply Comments at 17.  FTI observes 
that the goal of the E-rate program is access to advanced telecommunications services and we should not attempt to 
measure educational achievements in order to measure the goals of the universal service fund.  FTI Reply Comments 
at 2.
120 CPS Comments at 9-10; ISTE Comments at 12; NREAC Comments at 3.
121 USAC Comments at 87.  See USAC’s website at http://www.usac.org/sl/about/site-visits/default.aspx.  The site 
visits are also described in the GAO 2005 E-Rate Report at 35.
122 USAC Comments at 87-88.  See Letter from Richard Belden, Chief Operating Officer, USAC to Marlene H. 
Dortch, Secretary and Mark Stone, Deputy Managing Director, Office of the Managing Director, FCC, Mar. 21, 
2007.
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41. Currently, USAC obtains certain basic information from applicants applying for 
E-rate funding about their Internet connectivity, but does not analyze the responses in the 
aggregate.123 Blocks 2 and 3 of the FCC Form 471 contain sections asking schools and libraries 
to provide: (1) the number of connections they have to dial-up access; (2) the number of 
buildings served by broadband services and whether the speed of this broadband service is less 
than 10 mbps, between 10 and 200 mbps, or greater than 200 mbps; (3) the number of direct 
connections to the Internet; (4) the number of classrooms or buildings with Internet access; and 
(5) the number of computers or other devices with Internet access.124  It also asks how these 
numbers will change after the services are ordered.125 The Commission also is currently 
conducting inquiries to examine issues such as the definition of broadband and the speeds and 
other data which the Commission may want to collect in the future.  We anticipate that the 
Commission will update the data it collects from E-rate recipients to comport with the changes 
that result from these proceedings.
42. As noted above, nearly all schools have Internet access, and most of those schools 
are using broadband connections.126  We do not have, however, a good understanding of the 
different types or capacities of broadband services that are supported through the E-rate program. 
The collection of this type of information from E-rate program participants will enable the 
Commission to determine how the E-rate program can better meet the needs of applicants.  
Therefore, we require the Administrator to continue to measure and to report to the Commission 
broadband connections provided to program participants, including the number of buildings 
served by broadband services and the bandwidth of these services.  We further require the 
Administrator to work with the Wireline Competition Bureau (“Bureau”) to modify the relevant 
FCC forms or to create additional questions for program participants to more accurately 
determine how schools and libraries connect to the Internet and their precise levels of 
connectivity. The collections of such additional information will enable the Commission to 
identify the specific products, services, and capabilities (e.g., T-1s, DS-3s) at specific quantities 
provided via the E-rate program.
43. We also agree with USAC’s suggestion to cross-reference participating school 
districts with a full listing of school districts to identify the public schools that are not 
participating in the E-rate program in order to focus outreach on these schools.127 Commenters 
observe that the least sophisticated applicants, with the greatest needs, may be discouraged from 
participating in the E-rate program due to the cumbersome application process.128 The 
Administrator should investigate the issue of nonparticipating eligible schools further by 
contacting a sample of the economically disadvantaged schools and libraries that choose not to 
participate in the E-rate program.  The Administrator should determine why these schools and 
  
123 See Schools and Libraries Universal Service Description of Services Ordered and Certification Form 471, OMB 
3060-0806 (November 2004) (“FCC Form 471”) at 2.  
124 Id.
125 Id.
126 1995-2005 NCES Study at 14, 18.
127 AASA Comments at 9; USAC Comments at 88-90.
128 CTIA Comments at 12; HITN Comments at 3; ALA Reply Comments at 2-3; Illinois Reply Comments at 1-3.
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libraries choose not to participate and assist them, if necessary, in the beginning of the 
application process. The Administrator should report its conclusions to the Commission 
annually.
b. Application Processing
44. Application processing time and number of applicants.  In the Program 
Management NPRM, we sought comment on performance measures related to application 
processing.129 Many commenters state that the timing of application processing is one of their 
biggest concerns.130 Commenters suggest various measures and deadlines, such as requiring that 
USAC process at least 90 percent of applications and funding commitments by June 1 prior to 
the start of the funding year.131 Therefore, we are requiring the Administrator to provide data, on 
a funding year basis, reporting the number of applications and funding request numbers 
(“FRNs”) submitted, the number of applications and FRNs rejected, the number of applications 
and FRNs granted, and the processing time for applications and FRNs.  At this time, we will not 
impose processing deadlines or requirements on the Administrator, although we may impose 
deadlines or targets in the future, if necessary.  The measurements we seek here should provide 
us with more information about certain application-related tasks and may help us and the 
Administrator find ways to be more efficient.  
45. We recognize that some applications may be very large or problematic, and will 
be more time consuming for the Administrator than the average application.  In many cases, these 
applications cannot be processed without significant further input from the applicant.132 The 
Administrator may need to request further information from the applicant or may need to 
investigate possible rule violations or fraud.133  Our adoption of these performance measures 
should not affect in any way the Administrator’s contacts with applicants to facilitate application 
processing.  In reporting the results of this performance measurement, the Administrator will 
disaggregate the data to group the complex applications separately and separate the applications 
by amount of support requested.  We recognize that completing application processing by July 1 
may be a reasonable goal for average applications or for Priority One applications but may be an 
unrealistic goal for all applications.  In the future, we may revisit this performance measure and 
require the Administrator to disaggregate the data in other ways.
  
129 Program Management NPRM, 20 FCC Rcd at 11322, ¶ 31.
130 See, e.g., CDE Comments at 10; CPS Comments at 10-11; GCI Comments at 25-27; Florida Comments at 8; 
ISTE Comments at 23-24; Qwest Comments at 18 (mandatory timelines are critical); Weisinger Comments at 9; 
SDDE Reply Comments at 1-4.
131 CPS Comments at 10, 16 (June 1); GSI Comments at 27; LAUSD Comments at 2 (July 1); On-Tech Comments at 
4 (June 1); USAC Comments at 91 (July 1); Weisinger Comments at 12 (July 1); HITN Reply Comments at 2-3; 
Verizon Reply Comments at 4.  See also ISTE Comments at 24 (August 15th).  Commenters support performance 
measures, such as number of applications processed and number of days to process an application.  See BellSouth 
Comments at 12; GCI Comments at 27; Wisconsin Comments at 4.  USAC agrees that one if its goals is to issue 
funding commitments before the July 1 start of each funding year.  See USAC Comments at 37-38.
132 USAC Comments at 38.
133 An additional complication, USAC explains, is that it is often difficult to get information in the summer because 
many schools are closed and staff is unavailable.  USAC Comments at 91.
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Performance Measurements for Applications, per funding year
· Number of eligible applicants served and their discount rate;134
· Number of applications and FRNs submitted;
· Average (mean) processing time and percent of applications and FRNs completed by June 
1; measured from the date of receipt to the date of commitment or denial;
· Processing time for fastest 50 percent, 75 percent, and 100 percent of the applications and 
FRNs;
· Number of applications and FRNs rejected;
· Number of applications and FRNs granted;
· Average (mean) dollar amount awarded and median dollar amount awarded, per FRN;
· Total amount disbursed.
46. Invoices.  After eligible services have been delivered, service providers and school 
and library applicants submit invoices for support.135 The Administrator issues payment to 
service providers, not directly to applicants.136 If the school or library needs reimbursement of 
discounts due on approved services for which it has paid full price, it files the FCC Form 472, 
Billed Entity Applicant Reimbursement (“BEAR”) Form.137 Commenters contend that USAC’s 
requests for bills and additional forms create significant delays.138 For this reason, we are 
requiring USAC to document the amount of time it takes to make a BEAR payment to the service 
provider, from the date the BEAR form is submitted.
47. The applicant can, alternatively, pay only the non-discounted portion of the bill 
and the vendor can seek reimbursement from the Administrator by filing the FCC Form 474, 
Service Provider Invoice Form (“Form 474”).139  Delay in paying the service provider the 
discounted portion of the bill is an inconvenience for the service providers, particularly for small 
businesses.  We are, therefore, also requiring USAC to document the amount of time it takes to 
make these payments to service providers, from the date the invoice is submitted.140
  
134 See NEILSA Comments at 3; On-Tech Comments at 4.
135 USAC website, Invoice USAC, at http://www.usac.org/sl/applicants/step11 (retrieved March 5, 2007).
136 Id.
137 Universal Service for Schools and Libraries, Billed Entity Applicant Reimbursement Form, OMB 3060-0856 
(October 1998) (“FCC Form 472”).
138 ALA Comments at 21; CPS Comments at 22.  Qwest notes that some invoices have been outstanding at USAC 
since 2004.  Qwest Comments at 19.  One commenter observes that it has seen remarkable improvement in USAC’s 
invoicing performance in the past year.  See IBM Reply Comments at 5.
139 See 47 C.F.R. § 54.514 (allowing billed entity to choose payment method).
140 See, e.g., BellSouth Comments at 12; Qwest Comments at 19 (recommending a 90-day deadline for paying 
service provider invoices); On-Tech Comments at 5 (recommending seven days for invoice processing).
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48. We recognize that the Administrator could reject more invoices in order to 
improve the amount of time it takes to make payments.141 For this reason, we also require the 
Administrator to provide the number of paid invoices and the number of rejected invoices.
Invoices, per funding year
· Number of invoices received;
· Number of invoices paid;
· Number of invoices rejected;
· Average (mean) time to pay invoices;142
· Time to approve or reject 50 percent, 75 percent, and 100 percent of the submitted 
invoices.
49. Appeals to the Administrator. Applicants who receive a denial or partial denial of 
their funding request from the Schools and Libraries Division can submit a request for review (or 
“appeal”) to USAC.143 Commenters note that they wait for a significant period of time before 
they receive any information from USAC about their appeals.144 We agree with the commenters 
addressing this issue that appeals from the schools and libraries division to the Administrator 
should be resolved within a short period of time.145 We recognize that some issues on appeal 
may involve complicated facts or difficult policy issues.  Most appeals, however, should be 
handled quickly.  For this reason, we will have the Administrator determine the percentage of 
appeals that are resolved by the Administrator within 90 days from the date of appeal.146 The 
Administrator will also provide information on how long it takes to process 50 percent, 75 
percent, and 100 percent of the pending appeals from the schools and libraries division.147
Appeals
  
141 See AT&T Reply Comments at 3-4.
142 Average time; measured from the date the invoice is submitted to the date payment is issued.
143 47 C.F.R. § 54.719.  The request for review must be filed within 60 days from the issuance of the decision.  47 
C.F.R. § 54.720(a).
144 CGCS Comments at 13; HITN Comments at 4; Qwest Comments at 12; HITN Reply Comments at 2; Qwest 
Reply Comments at 11 (suggesting that the Administrator should have firm deadlines); SDDE Reply Comments at 8-
9.
145 See, e.g., GCI Comments at 28; HITN Comments at 4 (recommends 60 days); ISTE Comments at 25 
(recommends 90 days); Kellogg Comments at 10 (six months); M-DCPS Comments at 14; On-Tech Comments at 5 
(30 days); Qwest Comments at 12, 19 (90 days); Sprint Comments at 13-15; HITN Reply Comments at 2.  IBM 
observes that its backlog of appeals at USAC has been almost eliminated recently.  See IBM Reply Comments at 5.
146 An appeal or request for review is considered the letter submitted by an applicant or a service provider under 47 
C.F.R. § 54.719.  One appeal may address more than one application, FRN, and issue.  USAC may, in its discretion, 
subdivide appeals by FRNs if this would more accurately reflect the substantive appeals backlog.  
147 By “pending appeals” we mean an appeal or request for review filed by an applicant that has not yet been decided 
by the Administrator.
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· Number of pending appeals to the Administrator from the schools and libraries division, 
grouped by year filed;
· Number of current (i.e., filed the previous quarter) appeals to the Administrator from the 
schools and libraries division;
· Average (mean) time for the Administrator to resolve appeals from the schools and 
libraries division;148
· Time for the Administrator to approve or reject 50 percent, 75 percent, and 100 percent of 
the quickest filed appeals from the schools and libraries division.
3. Low-income
50. The low-income program is designed to ensure that telecommunications services 
are available to low-income customers at just, reasonable, and affordable rates. The program 
reimburses carriers for providing services to qualifying consumers at discounted rates.  The goal 
of the program is to increase subscribership among low-income consumers.149 Commenters 
contend that the appropriate measures for the low-income program are subscribership and actual 
consumer usage patterns.150  USAC suggests that a method to determine the percentage of 
households eligible for low-income support, and to measure the effectiveness of the program, is 
to count the number of households receiving Lifeline per state per quarter compared to census 
data.151 USAC suggests, inter alia, the following performance measures:  time to process support 
payments and authorize disbursements; support disbursements compared to program-specific 
administrative costs; total number of stakeholders served. 152
51. We do not have sufficient data at this time to establish goals for these low-income 
performance measurements.  The performance measures we adopt should help us improve the 
productivity and efficiency of the low-income program.  We will continue to review this area and 
evaluate the effectiveness of the measures we adopt today. Accordingly, we adopt the following 
performance measurements for the low-income support mechanism:
· Number of program beneficiaries (i.e., carriers); 
· Number of low-income customers for which each carrier receives low-income support; 
· Number of connections supported;
· Time to process support payments and authorize disbursements;
· Average (mean) dollar amount awarded and median dollar amount awarded, per carrier;
· Total amount disbursed.
  
148 This measurement should be the average amount of days between the denial by the schools and libraries division 
and the decision by USAC on appeal.  
149 Qwest Comments at 21; Verizon Reply Comments at 4.  Two commenters observe that telephone subscribership 
has actually decreased nationwide since 2003.  NJRA Reply Comments at 3; Qwest Reply Comments at 6-7.  See 
also “Telephone Subscribership in the United States,” Industry Analysis and Technology Division, Wireline 
Competition Bureau, FCC (Oct. 2006).
150 GCI Comments at 13; Qwest Comments at 21.
151 USAC Comments at 98-99.
152 USAC Comments at 100.
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52. In addition, we are adopting performance measurements based on the Lifeline 
Annual Verification Results filed by carriers each year.153 Initially, we are limiting this to the 
survey certifications filed by Qwest, Verizon, and AT&T (formerly SBC and BellSouth).  We 
recognize that many carriers file these annual reports with the Administrator; however, at this 
initial stage of implementing our performance measurements we are asking the Administrator to 
provide us with this summary information from these three carriers only.  These surveys, based 
on a statistically valid sample of customers, show that a substantial percentage of customers did 
not respond to the carriers’ request for information.  A customer’s failure to respond after 60 
days results in termination of Lifeline benefits.  We do not know if the customers who were 
terminated from the Lifeline program due to their failure to respond to the survey were otherwise 
eligible to receive Lifeline discounts.  If that is the case, after the Administrator’s periodic 
outreach and site visits the percentage of customers who fail to respond to these surveys may 
decrease over time.  Due to the results of these initial surveys, we are requiring the Administrator 
to provide us with the following summary information annually from the surveys filed by these 
three carriers, on a per company basis:
· Number of Lifeline customers surveyed;
· Number of Lifeline customers found to be ineligible;
· Number of Lifeline customers who did not respond to the survey.
53. This information we are requiring is a portion of the Lifeline Annual Verification 
Results filed by carriers each year.  We may revisit this issue at a later time and request further 
information from these carriers or information from the remaining carriers.  We may also request 
the Administrator to disaggregate the results from Tribal Areas.  To some degree it is inevitable 
that some customers will not respond to the Lifeline survey.  Nevertheless, the Administrator’s 
outreach and site visits and the carriers’ outreach programs may provide better results over time.
4. Rural Health Care
54. The rural health care program provides discounted rates for telecommunications 
services and Internet access charges used by rural health care providers for telemedicine.  USAC 
suggests, and we agree, that the following would be appropriate performance measures:  time to 
process applications;154 time to pay invoices; and time to determine appeals.155  We do not have 
sufficient data at this time to establish goals for these performance measures.  These performance 
measures will be a baseline against which subsequent goals can be implemented in the future.  
The performance measures we adopt should help us improve the productivity and efficiency of 
  
153 See Lifeline and Link-Up, CC Docket No. 96-45, Order, 19 FCC Rcd 8302 (2004); “Wireline Competition 
Bureau Answers Frequently Asked Questions Concerning Lifeline Order,” Public Notice, CC Docket No. 96-45, 20 
FCC Rcd 9159 (2005).
154 See also GCI Comments at 27 (suggesting average number of days to process applications and total number of 
applications).
155 USAC Comments at 100. GCI suggests that the Commission should measure the relative usage of the supported 
services. GCI Comments at 20.  We are not convinced that this metric would provide useful information.  The rural 
health care program focuses on rural and less populated areas and the number of people (patients) served may be 
more a reflection of general health conditions in an area than the usefulness of telemedicine.  
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the rural health care program. We therefore adopt the following performance measurements for 
the rural health care program, with the exception of the pilot program:156
Applications (per funding year)
· Number of eligible applicants served;157
· Number of applications submitted for telecommunications service;
· Number of applications submitted for Internet access service, total and disaggregated by 
technology and bandwidth;
· Total number of applications submitted;
· Processing time;158
· Number of applications rejected;
· Number of applications granted;
· Average (mean) dollar amount awarded and median dollar amount awarded;
· Average (mean) discount, per state;
· Total amount disbursed.
Invoices (per funding year)
· Number of invoices received;
· Number of invoices paid and number of invoices rejected;
· Average (mean) time to pay invoices, measured from the date the invoice is submitted to 
the date payment is issued to pay invoices.
Appeals
· Number of pending appeals to the Administrator from the rural health care division, 
grouped by year filed;
· Number of current (i.e., filed the previous quarter) appeals to the Administrator from the 
rural health care division;
· Time for the Administrator to resolve appeals from the rural health care division.159
These performance measures do not apply to the rural health care pilot program, for which 
performance measurements will be established at a later date.160
  
156 The pilot program will provide funding to support up to 85 percent of the costs of the construction of state or 
regional broadband networks and advanced telecommunications and information services provided over those 
networks. See Rural Health Care Support Mechanism, WC Docket No. 02-60, Order, 21 FCC Rcd 11111 (2006).
157 See NEILSA Comments at 3; On-Tech Comments at 4.
158 Average time and percent completed by June 1; measured from the date of receipt to the date of commitment or 
denial.  
159 This measurement should be the average amount of days between the denial by the schools and libraries division 
and the decision by USAC on appeal.  
160 Rural Health Care Support Mechanism, WC Docket No. 02-60, Order, 21 FCC Rcd 11111 (2006).
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5. High-cost
55. The high-cost program provides support payment to rural and non-rural 
incumbent local exchange carriers, and their competitors, to ensure that consumers in all regions 
have access to telecommunications services at rates that are reasonably comparable to those paid 
in urban areas.  We reject the proposal to set a goal that consumers have access to service from at 
least three eligible telecommunications carriers (“ETCs”).161 As other commenters observe, 
funding multiple ETCs in one area does not necessarily further the goals of the universal service 
program.162 Competition in such areas may, or may not, exist with the high-cost subsidies.163  We 
do not have sufficient data at this time to establish goals; these performance measures will be a 
baseline against which goals can be implemented in the future.  The performance measures we 
adopt should improve the productivity and efficiency of the high-cost program. Therefore, the 
Administrator will provide the following performance measurements:
· Number of program beneficiaries, (i.e., ETCs), per study area and per wire center;164
· Number of lines, per study area and per wire center, for each ETC;165
· Number of requests for support payments;
· Average (mean) dollar amount of support and median dollar amount of support for each 
line for high-cost ETCs;
· Total amount disbursed, aggregate and for each ETC;
· Time to process 50 percent, 75 percent, and 100 percent of the high-cost support requests 
and authorize disbursements;166
· Rates of telephone subscribership in urban vs. rural areas.167
6. USAC Administrative Performance Measures, not Program-Specific
56. In addition to the performance measurements set forth above for the specific USF 
programs, we also adopt performance measures applicable to the administration of the USF, in 
general.  USAC suggests the following performance measures: billing accuracy;168 disbursement 
accuracy; 169 measurements of commitment adjustment letters (“COMADs”) and fund recovery 
  
161 See Dobson Comments at 12-13.
162 NTCA Reply Comments at 4; OPASTCO Reply Comments at 8-9; Verizon Reply Comments at 3.
163 Verizon Reply Comments at 3.  NTCA contends that the Commission should eliminate the rule which allows 
competitive ETCs to receive support based solely on the incumbent LEC’s costs.  NTCA Reply Comments at 4.  
This issue, determining the amount of high-cost support a competitive ETC should receive under our rules, is outside 
the scope of this proceeding.
164 USAC Comments at 93.
165 USAC Comments at 93.
166 USAC Comments at 93.
167 USAC Comments at 92.
168 See also Qwest Comments at 22.
169 USAC Comments at 100.
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efforts.170 We are concerned with the extent and scope of waste, fraud, and abuse in the USF.171  
Therefore, we are requiring the Administrator to provide the amount of payments determined to 
be improper payments and the error rate (i.e., the percentage of total payments that are 
determined to be improper payments) and the amount of improper payments subsequently 
recovered from the beneficiaries by the USF Administrator.
57. We do not have sufficient data at this time to establish goals; these performance 
measures will establish a baseline against which goals can be implemented in the future. The 
Administrator shall, therefore, provide the Commission with these additional performance 
measurements on a funding year basis.  
· USAC administrative costs, per program, and general administrative costs (not program-
specific);
· The amount of payments determined to be improper payments and the error rate (i.e., the 
percentage of total payments that are determined to be improper payments), per program;
· The amount of improper payments subsequently recovered from the beneficiaries by the 
USF Administrator, per program;
· Number of corrections or true-ups due to errors by the Administrator, per program;
· Number of USF contributors;
· Number of USF contributors 90 days or more delinquent in payments;
· Total amount of delinquencies or past due payments;
· Total number of contributors assessed late fees or penalties;
· Total amount of late fees or penalties;
· Total amount of contributions to the USF;
· Total amount of disbursements.
IV. PROCEDURAL MATTERS
A. Accessible Formats
58. To request materials in accessible formats for people with disabilities (Braille, 
large print, electronic files, audio format), send an e-mail to fcc504@fcc.gov or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 (TTY).
B. Regulatory Flexibility Analysis
59. As required by the Regulatory Flexibility Act of 1980, see 5 U.S.C. § 604, the 
Commission has prepared a Final Regulatory Flexibility Analysis (“FRFA”) of the possible 
significant economic impact on small entities of the policies and rules addressed in this Report 
and Order.  The FRFA is set forth in Appendix B.
C. Paperwork Reduction Act Analysis
60. This Report and Order contains a modified information collection requirement 
subject to the Paperwork Reduction Act of 1995 (“PRA”).172 It will be submitted to the Office of 
  
170 Measured in dollars recovered, per funding year.
171 See NJRA Reply Comments at 20-21.
172 Public Law 104-13
Federal Communications Commission FCC 07-150
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Management and Budget (“OMB”) for review under section 3507(d) of the PRA.  OMB, the 
general public, and other federal agencies are invited to comment on the modified information 
collection requirements contained in this Report and Order.  The information collection 
requirements adopted herein will not go into effect until approved by OMB.
D. Congressional Review Act
61. The Commission will send a copy of this Report and Order in a report to be sent 
to Congress and the Government Accountability Office pursuant to the Congressional Review 
Act (“CRA”), see 5 U.S.C. § 801(a)(1)(A).
V. ORDERING CLAUSES
62. Accordingly, IT IS ORDERED that pursuant to sections 1, 2, 4(i), 4(j), 201, 202, 
218-220, 254, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 
152, 154(i), 154(j), 201, 202, 218-220, 254, and 303(r) this Report and Order in WC Docket No. 
05-195, CC Docket No. 96-45, CC Docket No. 02-6, WC Docket No. 02-60, WC Docket No. 03-
109, and CC Docket No. 97-21 IS ADOPTED, and that Part 54 of the Commission’s Rules, 47 
C.F.R. Part 54, is amended as set forth in Appendix C.  The Report and Order shall become 
effective 30 days after publication in the Federal Register.
63. IT IS FURTHER ORDERED that the Commission’s Consumer and 
Governmental Affairs Bureau, Reference Information Center, SHALL SEND a copy of this 
Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
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APPENDIX A
List of Commenters
Initial Comments
Commenter Abbreviated name
Alaska E-Rate Coordinator Alaska
Alexicon Telecommunications Consulting Alexicon
American Association of School 
Administrators and Association of Educational 
Service Agencies
AASA
American Library Association ALA
Arkansas E-Rate Work Group AEWG
AT&T Corp. AT&T
BellSouth Corporation BellSouth
Business Discount Plan BDP
California Department of Education CDE
Centennial Communications Corporation Centennial
CenturyTel, Inc. CenturyTel
Chicago Public Schools CPS
Council of Chief State School Officers CCSSO
Council of the Great City Schools CGCS
CTIA – The Wireless Association® CTIA
Delaware Public Service Commission DE PSC
Dobson Cellular Systems, Inc. and American 
Cellular Corporation
Dobson
Education and Library Networks Coalition EdLiNC
E-Rate Service Provider Forum ESPF
Federal Communications Commission, Office 
of Inspector General
OIG
Federated Investors, Inc. Federated
Florida Public Service Commission and 
Florida Department of State, State Library, and 
Archives of Florida
Florida
General Communication, Inc. GCI
GVNW Consulting, Inc. GVNW
Heend, Orin and Fitzgerald, Sara Heend
Hispanic Information and Telecommunications 
Network 
HITN
IDT Telecom, Inc. IDT
International Society for Technology in 
Education and the Consortium for School 
Networking
ISTE
Kellogg & Sovereign Consulting, LLC Kellogg
Federal Communications Commission FCC 07-150
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Los Angeles Unified School District LAUSD
Miami-Dade County Public Schools M-DPS
Missouri Public Service Commission MoPSC
National Exchange Carrier Association, Inc. NECA
National Head Start Association NHSA
National Rural Education Advocacy Coalition NREAC
National Telecommunications Cooperative 
Association
NTCA
New Jersey Board of Public Utilities NJ Board
New Jersey Division of the Ratepayer 
Advocate
NJRA
New York State Education Department NYSED
Northeast Iowa Library Service Area NEILSA
On-Tech On-Tech
Organization for the Promotion and 
Advancement of Small 
Telecommunications Companies 
and the Western Telecommunications Alliance
OPASTCO
Private School Technology Coalition PSTC
Qwest Communications International, Inc. Qwest
SBC Communications, Inc. SBC
South Carolina K-12 School Technology 
Initiative Partnership
SC K-12
Sprint Nextel Corporation Sprint
State E-Rate Coordinators Alliance SECA
TracFone Wireless, Inc. TracFone
Trillion Partners, Inc. Trillion
United States Telecom Association USTelecom
Universal Service Administrative Company USAC
Verizon Communications, Inc. Verizon
Weisiger, Greg Weisiger
West Virginia Department of Education, Office 
of Technology and Information Systems
WVDE
West Virginia Library Commission WVLC
Wisconsin Department of Public Instruction Wisconsin
Reply Comments
Commenter Abbreviated name
American Association of School 
Administrators and Association of Educational 
Service Agencies
AASA
American Library Association ALA
AT&T, Inc. AT&T
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Council of the Great City Schools CGCS
Dobson Cellular Systems, Inc. and American 
Cellular Corporation
Dobson
FTI Consulting, Inc. FTI
GVNW Consulting, Inc. GVNW
Hispanic Information and Telecommunications 
Network
HITN
IDT Telecom, Inc. IDT
Illinois State Library, Office of the Secretary of 
State
Illinois
International Business Machines Corporation IBM
International Society for Technology in 
Education and the Consortium for School 
Networking
ISTE
National Exchange Carrier Association, Inc. NECA
National Telecommunications Cooperative 
Association 
NTCA
New Jersey Division of the Ratepayer 
Advocate
NJRA
Organization for the Promotion and 
Advancement of Small Telecommunications 
Companies and the Western 
Telecommunications Alliance
OPASTCO
Pennsylvania Department of Education PDE
Qwest Communications International, Inc. Qwest
State Educational Technology Directors 
Association
SETDA
State E-Rate Coordinators Alliance SECA
South Dakota Department of Education SDDE
Sprint Nextel Corporation Sprint
Universal Service Administrative Company USAC
Verizon Communications, Inc. Verizon
WiscNet WiscNet
Wisconsin Council on Library and Network 
Development
Wisconsin COLAND
Wisconsin Department of Public Instruction Wisconsin
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APPENDIX B
Final Regulatory Flexibility Analysis
1. As required by the Regulatory Flexibility Act (“RFA”),173 an Initial Regulatory 
Flexibility Analysis (“IRFA”) was incorporated in the Notice of Proposed Rulemaking and 
Further Notice of Proposed Rulemaking in WC Docket 05-195 (“Program Management 
NPRM”).174 The Commission sought written public comment on the proposals in the Program 
Management NPRM, including comment on the IRFA.  This Final Regulatory Flexibility 
Analysis (“FRFA”) conforms to the RFA.
A. Need for, and Objectives of, the Rules
2. This Report and Order adopts rules to safeguard the Universal Service Fund 
(“USF”) from waste, fraud, and abuse as well as measures to improve the management, 
administration, and oversight of the USF.  In this Report and Order, the Commission adopts rules 
requiring timely filing of Telecommunications Reporting Worksheets and timely payment of 
universal service fund contributions.  The Commission also adopts rules assessing penalties and 
interest for failure to file and pay in a timely manner.  This Report and Order codifies the USF 
Administrator’s current practice of applying a delinquent payment to the contributor’s oldest past 
due amount.  This Report and Order adopts performance measures for the universal service 
programs and for the Administrator.  In addition, the Commission adopts document retention 
requirements and administrative limitation periods for the high-cost, low-income, and rural 
health care universal service programs; adopts rules for recovery of improperly disbursed funds 
for the high-cost, low-income, and rural health care universal service programs; and revises our 
debarment rules to include parties who are convicted of criminal violations or held civilly liable 
for acts arising out of the high-cost, low-income, and rural health care universal service 
programs.
B. Summary of Significant Issues Raised by Public Comments in Response to 
the IRFA
3. There were no comments filed that specifically addressed the IRFA.  
C. Description and Estimate of the Number of Small Entities to Which Rules 
Will Apply
  
173 See 5 U.S.C. § 603.  The RFA, see 5 U.S.C. §§ 601-612, has been amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996 (“SBREFA”), Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
174 See Comprehensive Review of Universal Service Fund Management, Administration, and Oversight, WC Docket 
No. 05-195, Notice of Proposed Rulemaking and Further Notice of Proposed Rulemaking, 20 FCC Rcd 11308 
(2005) (“Program Management NPRM”).  
Federal Communications Commission FCC 07-150
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4. The RFA directs agencies to provide a description of, and, where feasible, an 
estimate of, the number of small entities that may be affected by the rules adopted herein.175 The 
RFA generally defines the term “small entity” as having the same meaning as the terms “small 
business,” “small organization,” and “small governmental jurisdiction.”176 In addition, the term 
“small business” has the same meaning as the term “small business concern” under the Small 
Business Act.177 A “small business concern” is one which:  (1) is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria 
established by the Small Business Administration (“SBA”).178
5. A small organization is generally “any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.”179 Nationwide, as of 2002, 
there were approximately 1.6 million small organizations.180 The term “small governmental 
jurisdiction” is defined as “governments of cities, towns, townships, villages, school districts, or 
special districts, with a population of less than fifty thousand.”181 As of 1997, there were 
approximately 87,453 governmental jurisdictions in the United States.182 This number includes 
39,044 county governments, municipalities, and townships, of which 37,546 (approximately 96.2 
percent) have populations of fewer than 50,000, and of which 1,498 have populations of 50,000 
or more.  Thus, we estimate the number of small governmental jurisdictions overall to be 84,098 
or fewer.  Nationwide, there are a total of approximately 22.4 million small businesses, according 
to SBA data.183
6. Schools and libraries.  As noted, “small entity” includes non-profit and small 
governmental entities.  Under the schools and libraries universal service support mechanism, 
which provides support for elementary and secondary schools and libraries, an elementary school 
is generally “a non-profit institutional day or residential school that provides elementary 
education, as determined under state law.”184 A secondary school is generally defined as “a non-
profit institutional day or residential school that provides secondary education, as determined 
under state law,” and not offering education beyond grade 12.185 For-profit schools and libraries, 
  
175 5 U.S.C. § 604(a)(3).
176 5 U.S.C. § 601(6).
177 5 U.S.C. § 601(3) (incorporating by reference the definition of “small-business concern” in the Small Business 
Act, 15 U.S.C. § 632).  Pursuant to 5 U.S.C. § 601(3), the statutory definition of a small business applies “unless an 
agency, after consultation with the Office of Advocacy of the Small Business Administration and after opportunity 
for public comment, establishes one or more definitions of such term which are appropriate to the activities of the 
agency and publishes such definition(s) in the Federal Register.”  5 U.S.C. § 601(3).
178 15 U.S.C. § 632.
179 5 U.S.C. § 601(4).
180 Independent Sector, The New Nonprofit Almanac & Desk Reference (2002). 
181 5 U.S.C. § 601(5). 
182 U.S. Census Bureau, Statistical Abstract of the United States: 2000, Section 9, pages 299-300, Tables 490 and 492.  
183 See SBA, Programs and Services, SBA Pamphlet No. CO-0028, 40 (Jul. 2002).
184 47 C.F.R. § 54.500(b).
185 47 C.F.R. § 54.500(j).
Federal Communications Commission FCC 07-150
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and schools and libraries with endowments in excess of $50,000,000, are not eligible to receive 
discounts under the program, nor are libraries whose budgets are not completely separate from 
any schools.186 Certain other statutory definitions apply as well.187 The SBA has defined for-
profit, elementary and secondary schools and libraries having $6 million or less in annual 
receipts as small entities.188  We are unable to estimate with precision the number of these entities 
that would qualify as small entities under SBA’s size standard; we estimate that fewer than 
83,700 schools and 9,000 libraries might be affected annually by our action, under current 
operation of the program.
7. Incumbent Local Exchange Carriers (“LECs”).  We have included small 
incumbent local exchange carriers in this RFA analysis.  A “small business” under the RFA is 
one that, inter alia, meets the pertinent small business size standard (e.g., a telephone 
communications business having 1,500 or fewer employees), and “is not dominant in its field of 
operation.”189 The SBA’s Office of Advocacy contends that, for RFA purposes, small incumbent 
local exchange carriers are not dominant in their field of operation because any such dominance 
is not “national” in scope.190 We have therefore included small incumbent carriers in this RFA 
analysis, although we emphasize that this RFA action has no effect on the Commission’s 
analyses and determinations in other, non-RFA contexts.
8. Competitive Local Exchange Carriers (“CLECs”), Competitive Access Providers 
(“CAPs”) and “Other Local Exchange Carriers.”  Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable to providers of competitive 
exchange services or to competitive access providers or to “Other Local Exchange Carriers.”  
The closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or fewer employees.191  
According to Commission data,192 563 companies reported that they were engaged in the 
provision of either competitive access provider services or competitive local exchange carrier 
services.  Of these 563 companies, an estimated 472 have 1,500 or fewer employees and 91 have 
more than 1,500 employees.193 In addition, 35 carriers reported that they were “Other Local 
Exchange Carriers.”  Of the 37 “Other Local Exchange Carriers,” an estimated 36 have 1,500 or 
fewer employees and one has more than 1,500 employees.194 Consequently, the Commission 
  
186 47 C.F.R. § 54.501.
187 See id.
188 13 C.F.R. § 121.201, North American Industry Classification System (“NAICS”) codes 611110 and 519120.
189 5 U.S.C. § 601(3). 
190 See Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to William E. Kennard, Chairman, FCC, 
dated May 27, 1999.  The Small Business Act contains a definition of “small business concern,” which the RFA
incorporates into its own definition of “small business.”  See U.S.C. § 632(a) (“Small Business Act”); 5 U.S.C. § 
601(3) (“RFA”).  SBA regulations interpret “small business concern” to include the concept of dominance on a 
national basis.  13 C.F.R. § 121.102(b).  
191 13 C.F.R. § 121.201, NAICS code 517110.
192 Trends in Telephone Service at Table 5.3.
193 Id.
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estimates that most providers of competitive local exchange service, competitive access 
providers, and “Other Local Exchange Carriers” are small entities that may be affected by the 
rules and policies adopted herein.
9. Interexchange Carriers (“IXCs”).  Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable to interexchange services.  
The closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or fewer employees.195  
According to the Commission data,196 281 companies reported that their primary 
telecommunications service activity was the provision of payphone services.  Of these 281 
companies, an estimated 254 have 1,500 or fewer employees and 27 have more than 1,500 
employees.197 Consequently, the Commission estimates that the majority of IXCs are small 
entities that may be affected by the rules and policies adopted herein.
10. Wireless Service Providers.  The SBA has developed a small business size 
standard for wireless small businesses within the two separate categories of Paging198 and 
Cellular and Other Wireless Telecommunications.199 Under both SBA categories, a wireless 
business is small if it has 1,500 or fewer employees.  According to the Commission data, 200
1,761 companies reported that they were engaged in the provision of wireless service.  Of these 
1,761 companies, an estimated 1,175 have 1,500 or fewer employees and 586 have more than 
1,500 employees.201 Consequently, the Commission estimates that most wireless service 
providers are small entities that may be affected by the rules and policies adopted herein.
11. Private and Common Carrier Paging. A “small business” is an entity that, 
together with its affiliates and controlling principals, has average gross revenues not exceeding 
$15 million for the preceding three years.  Additionally, a “very small business” is an entity that, 
together with its affiliates and controlling principals, has average gross revenues that are not 
more than $3 million for the preceding three years.  An auction of Metropolitan Economic Area 
paging licenses commenced on February 24, 2000, and closed on March 2, 2000.202 Of the 985 
licenses auctioned, 440 were sold. Fifty-seven companies claiming small business status won.  At 
(Continued from previous page)    
194 Id.
195 13 C.F.R. § 121.201, NAICS code 517110.
196 FCC, Wireline Competition Bureau, Industry Analysis and Technology Division, Trends in Telephone Service, 
Table 5.3, p. 5-5 (Feb. 2007) (“Trends in Telephone Service”).
197 Id.
198 13 C.F.R. § 121.201, North American Industry Classification System (NAICS) code 517211.
199 13 C.F.R. § 121.201, North American Industry Classification System (NAICS) code 517212.  This category 
includes Personal Communications Service (PCS) and SMR Telephony Carriers.
200 Trends in Telephone Service at Table 5.3.
201 Id.
202 Revision of Part 22 and Part 90 of the Commission’s Rules to Facilitate Future Development of Paging Systems, 
Memorandum Opinion and Order on Reconsideration and Third Report and Order, 14 FCC Rcd 10030, 10085, ¶ 98 
(1999).
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present, there are approximately 24,000 Private-Paging site-specific licenses and 74,000 
Common Carrier Paging licenses.  Also, according to Commission data, 365 carriers reported 
that they were engaged in the provision of either paging or messaging services or other mobile 
services.203 Of those, the Commission estimates that 360 are small, under the SBA-approved 
small business size standard.204  
12. Broadband Personal Communications Service. The broadband PCS spectrum is 
divided into six frequency blocks designated A through F, and the Commission has held auctions 
for each block.  The Commission has created a small business size standard for Blocks C and F 
as an entity that has average gross revenues of less than $40 million in the three previous 
calendar years.205 For Block F, an additional small business size standard for “very small 
business” was added and is defined as an entity that, together with its affiliates, has average gross 
revenues of not more than $15 million for the preceding three calendar years.206 These small 
business size standards, in the context of broadband PCS auctions, have been approved by the 
SBA.207 No small businesses within the SBA-approved small business size standards bid 
successfully for licenses in Blocks A and B.  There were 90 winning bidders that qualified as 
small entities in the Block C auctions.  A total of 93 “small” and “very small” business bidders 
won approximately 40 percent of the 1,479 licenses for Blocks D, E, and F.208 On March 23, 
1999, the Commission reauctioned 155 C, D, E, and F Block licenses; there were 113 small 
business winning bidders.209 On January 26, 2001, the Commission completed the auction of 422 
C and F Broadband PCS licenses in Auction No. 35.  Of the 35 winning bidders in this auction, 
29 qualified as “small” or “very small” businesses.210 Subsequent events, concerning Auction 35, 
including judicial and agency determinations, resulted in a total of 163 C and F Block licenses 
being available for grant.211
13. Internet Service Providers.  The SBA has developed a small business size 
standard for Internet Service Providers (“ISPs”).  ISPs “provide clients access to the Internet and 
  
203 Trends in Telephone Service, Table 5.3, p. 5-5.
204 Id.
205 See Amendment of Parts 20 and 24 of the Commission’s Rules – Broadband PCS Competitive Bidding and the 
Commercial Mobile Radio Service Spectrum Cap, Report and Order, 11 FCC Rcd 7824, 7850-52, ¶¶ 57-60 (1996) 
(“Broadband PCS Report and Order”); see also 47 C.F.R. § 24.720(b). 
206 See Broadband PCS Report and Order, 11 FCC Rcd at 7852, ¶ 60. 
207 See Letter to Amy Zoslov, Chief, Auctions and Industry Analysis Division, Wireless Telecommunications 
Bureau, Federal Communications Commission, from Aida Alvarez, Administrator, Small Business Administration, 
dated December 2, 1998. 
208 FCC News, Broadband PCS, D, E and F Block Auction Closes, No. 71744 (rel. Jan. 14, 1997). 
209 See C, D, E, and F Block Broadband PCS Auction Closes, Public Notice, 14 FCC Rcd 6688 (WTB 1999). 
210 See C and F Block Broadband PCS Auction Closes; Winning Bidders Announced, Public Notice, 16 FCC Rcd 
2339 (2001). 
211  In addition, we note that, as a general matter, the number of winning bidders that qualify as small businesses at 
the close of an auction does not necessarily represent the number of small businesses currently in service. Also, the 
Commission does not generally track subsequent business size unless, in the context of assignments or transfers, 
unjust enrichment issues are implicated.
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generally provide related services such as web hosting, web page designing, and hardware or 
software consulting related to Internet connectivity.”212 Under the SBA size standard, such a 
business is small if it has average annual receipts of $21 million or less.213 According to Census 
Bureau data for 1997, there were 2,751 firms in this category that operated for the entire year. 214  
Of these, 2,659 firms had annual receipts of under $10 million, and an additional 67 firms had 
receipts of between $10 million and $24, 999,999.  Consequently, we estimate that the majority 
of these firms are small entities that may be affected by our action.  In addition, limited 
preliminary census data for 2002 indicate that the total number of internet service providers 
increased approximately five percent from 1997 to 2002.215
D. Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
14. This Report and Order adopts rules to safeguard the USF from waste, fraud, and 
abuse as well as measures to improve the management, administration, and oversight of the USF. 
In this Report and Order, the Commission adopts rules requiring timely filing of 
Telecommunications Reporting Worksheets, timely payment of universal service fund 
contributions, and rules assessing penalties and interest for failure to file and pay in a timely 
manner.  This is not an additional reporting requirement; we are adopting penalties for entities 
that fail to comply with this preexisting reporting requirement.  In addition, this Report and Order 
codifies the Administrator’s current practice of applying a delinquent payment to the 
contributor’s oldest past due amount, which is not a reporting requirement.  
15. This Report and Order adopts performance measures for the universal service 
programs and for the Administrator.  We are requiring the USF Administrator to file certain 
performance measures pertaining to the universal service fund mechanisms.  This new 
requirement will facilitate Commission compliance with the Government Performance and 
Results Act (“GPRA”) of 1993.216 GPRA established statutory requirements for federal agencies 
to engage in strategic planning and performance measurement.  GPRA is intended to improve 
efficiency and effectiveness of federal programs through the establishment of specific goals for 
program performance. GRPA has three main requirements.  Federal agencies must develop 
  
212 U.S. Census Bureau, “2002 NAICS Definitions: 518111 Internet Service Providers” (Feb. 2004) 
www.census.gov.
213 13 C.F.R. § 121.201, NAICS code 518111.
214 U.S. Census Bureau, 1997 Economic Census, Subject Series:  Information, "Establishment and Firm Size 
(Including Legal Form of Organization)," Table 4, NAICS code 514191 (issued Oct. 2000).
215  See U.S. Census Bureau, 2002 Economic Census, Industry Series:  “Information,” Table 2, Comparative 
Statistics for the United States (1997 NAICS Basis):  2002 and 1997, NAICS code 514191 (issued Nov. 2004).  The 
preliminary data indicate that the total number of “establishments” increased from 4,165 to 4,394.  In this context, 
the number of establishments is a less helpful indicator of small business prevalence than is the number of “firms,” 
because the latter number takes into account the concept of common ownership or control.  The more helpful 2002 
census data on firms, including employment and receipts numbers, will be issued in late 2005.
216 Government Performance and Results Act of 1993, Public Law No. 103-62.
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strategic plans with long-term, outcome-related goals and objectives,217 develop annual goals 
linked to the long-term goals,218 and measure progress toward the achievement of those goals in 
annual performance plans and report annually on their progress in program performance
reports.219 The performance requirements we adopt in this Report and Order will allow us to later 
adopt goals for the universal service programs and to measure and progress toward achievement 
of those goals.
16. In addition, the Commission adopts document retention requirements and 
administrative limitation periods for the high-cost, low-income, and rural health care universal 
service programs; adopts a document retention requirement for USF contributors; adopts rules 
for recovery of improperly disbursed funds for the high-cost, low-income, and rural health care 
universal service programs; and revises our debarment rules to include parties who are convicted 
of criminal violations or held civilly liable for acts arising out of the high-cost, low-income, and 
rural health care universal service programs.  These rule changes are not new reporting 
requirements.
17. Finally, this Report and Order requires the USF Administrator to work with the 
Wireline Competition Bureau to modify the relevant FCC forms or to create additional questions 
to more accurately determine how schools and libraries connect to the Internet and their precise 
levels of connectivity. This additional reporting requirement will probably consist of an 
additional question or questions added to existing forms that USF beneficiaries currently file.
E. Steps Taken to Minimize the Significant Economic Impact on Small Entities, 
and Significant Alternatives Considered 
18. The RFA requires an agency to describe any significant alternatives that it has 
considered in developing its approach, which may include the following four alternatives (among 
others):  “(1) the establishment of differing compliance or reporting requirements or timetables 
that take into account the resources available to small entities; (2) the clarification, consolidation, 
or simplification of compliance and reporting requirements under the rule for such small entities; 
(3) the use of performance rather than design standards; and (4) an exemption from coverage of 
the rule, or any part thereof, for such small entities.”220
19. The Program Management NPRM sought comment on a number of issues 
pertaining to our oversight of the universal service fund.  One issue raised in the Program 
Management NPRM was whether we should adopt an annual audit requirement.  In this Report 
and Order the Commission has declined to adopt such a requirement due to the extensive 
auditing program initiated by the Commission’s Office of the Inspector General.    
  
217 5 U.S.C. § 306.  
218 Id.; 31 U.S.C. § 1115.  
219 31 U.S.C. §§ 1115 – 1116.  
220 5 U.S.C. § 603(c)(1) – (c)(4).
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20. The benefits of requiring the USF Administrator to provide the Commission with 
performance measures far outweigh any burdens associated with implementing these new 
reporting requirements.  We are requiring the USF Administrator to file certain performance 
measures pertaining to the universal service fund mechanisms to allow us to improve the 
universal service programs and to facilitate Commission compliance with GPRA. GPRA is 
intended to improve efficiency and effectiveness of federal programs through the establishment 
of specific goals for program performance. Our intention is to use the performance 
measurements adopted in this Report and Order to later adopt goals for the universal service 
programs and further improve these programs.
21. In addition, this Report and Order requires the USF Administrator to work with the 
Wireline Competition Bureau to modify the relevant FCC forms or to create additional questions 
to more accurately determine how schools and libraries connect to the Internet and their precise 
levels of connectivity. This additional reporting requirement will probably consist of an 
additional question or questions added to existing forms that USF beneficiaries currently file and 
thus will affect small entity beneficiaries. We anticipate that the minimal burden of requiring 
this additional information regarding broadband connections will be outweighed by the benefit of 
using this information to enable the Commission to determine how the schools and libraries 
program can better meet the needs of program applicants.
F. Report to Congress
64. The Commission will send a copy of the Report and Order, including this FRFA, 
in a report to be sent to Congress and the Government Accountability Office pursuant to the 
Congressional Review Act.221 In addition, the Commission will send a copy of the Report and 
Order, including this FRFA, to the Chief Counsel for Advocacy of the SBA.  A copy of the 
Second Report and Order and FRFA (or summaries thereof) will also be published in the Federal 
Register.222  
  
221 See 5 U.S.C. § 801(a)(1)(A).
222 See 5 U.S.C. § 604(b).
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APPENDIX C
Rules
Part 54 of Title 47 of the Code of Federal Regulations is amended to read as follows:
1. The authority citation for Part 54 continues to read as follows:
AUTHORITY:  Secs. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155.
2.  Section 54.202 is amended by adding subsection (e), as follows:
* * *
(e) All eligible telecommunications carriers shall retain all records required to 
demonstrate to auditors that the support received was consistent with the universal service 
high-cost program rules.  These records should include the following: data supporting line 
count filings; historical customer records; fixed asset property accounting records; general 
ledgers; invoice copies for the purchase and maintenance of equipment; maintenance 
contracts for the upgrade or equipment; and any other relevant documentation.  This 
documentation must be maintained for at least five years from the receipt of funding.
3.  Section 54.417(a) is amended by deleting the phrase “or until audited by the 
Administrator” from the second paragraph.
4.  Section 54.521 is renumbered 54.8 and subsections (a) (1), (5), (c), (d), (e)(3), (e)(4), 
(g) are amended as follows:
(a) Definitions -- (1) Activities associated with or related to the schools and libraries 
support mechanism, the high-cost support mechanism, the rural health care support 
mechanism, and the low-income support mechanism.  Such matters include the receipt of 
funds or discounted services through one or more of these support mechanisms, or 
consulting with, assisting, or advising applicants or service providers regarding one or 
more of these support mechanisms.
* * * 
(5) Debarment.  Any action taken by the Commission in accordance with these 
regulations to exclude a person from activities associated with or relating to the schools 
and libraries support mechanism, the high-cost support mechanism, the rural health care 
support mechanism, and the low-income support mechanism. A person so excluded is 
“debarred.”
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* * *
(7) Suspension.  An action taken by the Commission in accordance with these regulations 
that immediately excludes a person from activities associated with or relating to the 
schools and libraries support mechanism, the high-cost support mechanism, the rural 
health care support mechanism, and the low-income support mechanism for a temporary 
period, pending completion of the debarment proceedings.  A person so excluded is 
“suspended.”
* * * 
(c) Causes for suspension and debarment.  Causes for suspension and debarment are 
conviction of or civil judgment for attempt or commission of criminal fraud, theft, 
embezzlement, forgery, bribery, falsification or destruction of records, making false 
statements, receiving stolen property, making false claims, obstruction of justice and 
other fraud or criminal offense arising out of activities associated with or related to the 
schools and libraries support mechanism, the high-cost support mechanism, the rural 
health care support mechanism, and the low-income support mechanism.
(d) Effect of suspension and debarment.  Unless otherwise ordered, any persons 
suspended or debarred shall be excluded from activities associated with or related to the 
schools and libraries support mechanism, the high-cost support mechanism, the rural 
health care support mechanism, and the low-income support mechanism. Suspension and 
debarment of a person other than an individual constitutes suspension and debarment of 
all divisions and/or other organizational elements from participation in the program for 
the suspension and debarment period, unless the notice of suspension and proposed 
debarment is limited by its terms to one or more specifically identified individuals, 
divisions, or other organizational elements or to specific types of transactions.
* * * 
(e)(2)(i) Give the reasons for the proposed debarment in terms sufficient to put a person 
on notice of the conduct or transaction(s) upon which it is based and the cause relied 
upon, namely, the entry of a criminal conviction or civil judgment arising out of activities 
associated with or related to the schools and libraries support mechanism, the high-cost 
support mechanism, the rural health care support mechanism, and the low-income support 
mechanism;
* * *
(3) A person subject to proposed debarment, or who has an existing contract with a 
person subject to proposed debarment or intends to contract with such a person to provide 
or receive services in matters arising out of activities associated with or related to the 
schools and libraries support mechanism, the high-cost support mechanism, the rural 
health care support mechanism, and the low-income support mechanism may contest 
debarment or the scope of the proposed debarment.  A person contesting debarment or the 
scope of proposed debarment must file arguments and any relevant documentation within 
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thirty (30) calendar days of receipt of notice or publication in the Federal Register, 
whichever is earlier.
(4) A person subject to proposed debarment, or who has an existing contract with a 
person subject to proposed debarment or intends to contract with such a person to provide 
or receive services in matters arising out of activities associated with or related to the 
schools and libraries support mechanism, the high-cost support mechanism, the rural 
health care support mechanism, and the low-income support mechanism may also contest 
suspension or the scope of suspension, but such action will not ordinarily be granted.  A 
person contesting suspension or the scope of suspension must file arguments and any 
relevant documentation within thirty (30) calendar days of receipt of notice or publication 
in the Federal Register, whichever is earlier.
* * *
(g) Time period for debarment.  A debarred person shall be prohibited from involvement 
with the schools and libraries support mechanism, the high-cost support mechanism, the 
rural health care support mechanism, and the low-income support mechanism for three 
(3) years from the date of debarment.  The Commission may, if necessary to protect the 
public interest, set a longer period of debarment or extend the existing period of 
debarment.  If multiple convictions or judgments have been rendered, the Commission 
shall determine based on the facts before it whether debarments shall run concurrently or 
consecutively.
5.  Section 54.619 is amended by adding new subsection (d) as follows:
* * * 
(d) Service providers.  Service providers shall retain documents related to the delivery of 
discounted telecommunications and other supported services for at least 5 years after the 
last day of the delivery of discounted services.  Any other document that demonstrates 
compliance with the statutory or regulatory requirements for the rural health care 
mechanism shall be retained as well.
6. Section 54.702 is amended by adding new subsection (o) as follows:
* * *
(o) The Administrator shall provide performance measurements pertaining to the 
universal service support mechanisms as requested by the Commission by order or 
otherwise.
7. Section 54.706 is amended by adding new subsection (e) as follows:
Federal Communications Commission FCC 07-150
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* *  *
(e)  Any entity required to contribute to the federal universal service support mechanisms 
shall retain, for at least five years from the date of the contribution, all records that may 
be required to demonstrate to auditors that the contributions made were in compliance 
with the Commission’s universal service rules. These records shall include without 
limitation the following:  financial statements and supporting documentation; accounting 
records; historical customer records; general ledgers; and any other relevant 
documentation.  This document retention requirement also applies to any contractor or 
consultant working on behalf of the contributor.
8. Section 54.713 is amended by adding new subsections (b), (c), (d), and (e) as follows:
* * *
(b) If a universal service fund contributor fails to make full payment on or before the date 
due of the monthly amount established by the contributor’s applicable Form 499-A or 
Form 499-Q, or the monthly invoice provided by the Administrator, the payment is 
delinquent.  All such delinquent amounts shall incur from the date of delinquency, and 
until all charges and costs are paid in full, interest at the rate equal to the U.S. prime rate 
(in effect on the date of the delinquency) plus 3.5 percent, as well as administrative 
charges of collection and/ or penalties and charges permitted by the applicable law (e.g., 
31 U.S.C. § 3717 and implementing regulations).
(c)  If a universal service fund contributor is more than 30 days delinquent in filing a 
Telecommunications Reporting Worksheet Form 499-A or 499-Q, the Administrator 
shall assess an administrative remedial collection charge equal to the greater of $100 or 
an amount computed using the rate of the U.S. prime rate (in effect on the date the 
applicable Worksheet is due) plus 3.5 percent, of the amount due per the Administrator’s 
calculations.  In addition, the contributor is responsible for administrative charges of 
collection and/or penalties and charges permitted by the applicable law (e.g., 31 U.S.C. § 
3717 and implementing regulations).  The Commission may also pursue enforcement 
action against delinquent contributors and late filers, and assess costs for collection 
activities in addition to those imposed by the Administrator.
(d) In the event a contributor fails both to file the Worksheet and to pay its contribution, 
interest will accrue on the greater of the amounts due, beginning with the earlier of the 
date of the failure to file or pay. 
(e) If a universal service fund contributor pays the Administrator a sum that is less than 
the amount due for the contributor’s universal service contribution, the Administrator
shall adhere to the “American Rule” whereby payment is applied first to outstanding 
penalty and administrative cost charges, next to accrued interest, and third to outstanding 
principal.  In applying the payment to outstanding principal, the Administrator shall apply 
such payment to the contributor’s oldest past due amounts first.