[Federal Register: February 10, 2004 (Volume 69, Number 27)]
[Proposed Rules]
[Page 6229-6238]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10fe04-42]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[CC Docket No. 02-6; FCC 03-323]
Schools and Libraries Universal Service Support Mechanism
AGENCY: Federal Communications Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: In this document, the Commission addresses several matters
related to the administration of the schools and libraries universal
service mechanism (also known as the e-rate program). The Commission
seeks comment on several issues, including whether we should change the
discount matrix used to determine the level of discounts for which
applicants are eligible, the current competitive bidding process, the
definition of ``rural area'' used in the program, the definition of
Internet access, current rules relating to wide area networks, and
current procedures for recovery of funds. The Commission also seeks
comment on measures to limit waste, fraud, and abuse and improve the
Commission's ability to enforce the rules governing the program.
DATES: Comments are due on or before March 11, 2004. Reply comments are
due on or before April 12, 2004. Written comments on the proposed
information collection(s) must be submitted by the public, Office of
Management and Budget OMB), and other interested parties on or before
April 12, 2004.
ADDRESSES: All filings must be sent to the Commission's Secretary,
Marlene H. Dortch, Office of the Secretary, Federal Communications
Commission, 445 12th Street, SW., Washington, DC 20554. In addition to
filing comments with the Secretary, a copy of any Paperwork Reduction
Act (PRA) comments on the information collection(s) contained herein
should be submitted to Judith B. Herman, Federal Communications
Commission, Room 1-C804, 445 12th Street, SW., Washington, DC 20554, or
via the Internet to Judith-B.Herman@fcc.gov, and to Kim A. Johnson, OMB
Desk Officer, Room 10236 NEOB, 725 17th Street, NW., Washington, DC
20503, or via the Internet to Kim_A._Johnson@omb.eop.gov or by fax to
202-395-5167. Parties should also send three paper copies of their
filings to Sheryl Todd, Telecommunications Access Policy Division,
Wireline Competition Bureau, Federal Communications Commission, 445
Twelfth Street, SW., Room 5-B540, Washington, DC 20554. See
Supplemental Information for further filing instructions.
FOR FURTHER INFORMATION CONTACT: Kathy Tofigh, Attorney, at (202) 418-
1553, Karen Franklin, Attorney, at (202) 418-7706, or Jennifer
Schneider, Attorney, at (202) 418-0425 in the Telecommunications Access
Policy Division, Wireline Competition Bureau. For additional
information concerning the information collection(s) contained in this
document, contact Judith B. Herman at 202-418-0214, or via the Internet
at Judith-B.Heman@fc.gov.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second
Further Notice of Proposed Rulemaking (Second FNPRM) in CC Docket No.
02-6; FCC 03-323, released on December 23, 2003. A companion Order was
also released in CC Docket No. 02-6; FCC 03-323, on December 23, 2003.
The full text of this document is available for public inspection
during regular business hours in the FCC Reference Center, Room CY-
A257, 445 Twelfth Street, SW., Washington, DC 20554.
I. Introduction
1. In this Second Further Notice of Proposed Rulemaking, we address
several matters related to the administration of the schools and
libraries universal service mechanism (also known as the e-rate
program). In the Second FNPRM, we seek comment on several issues,
including whether we should change (1) the discount matrix used to
determine the level of discounts for which applicants are eligible, (2)
the current competitive bidding process, (3) the definition of ``rural
area'' used in the program, (4) the definition of Internet access, (5)
current rules relating to wide area networks, and (6) current
procedures for recovery of funds. We also seek comment on measures to
limit waste, fraud, and abuse and improve the Commission's ability to
enforce the rules governing the program. Finally, we seek additional
comment on how to ensure the goals of section 254 continue to be met.
II. Second Further Notice of Proposed Rulemaking
A. Discount Matrix
2. Under the Commission's rules, eligible schools and libraries may
receive discounts ranging from 20 percent to 90 percent of the pre-
discount price of eligible services, based on indicators of need. We
seek comment on the effectiveness and efficiency of the discount matrix
used to determine support payments for eligible
[[Page 6230]]
applicants. In particular, we seek comment on changing the matrix to
adjust the levels of discounts received by schools and libraries for
supported services. We also particularly seek comment from the State
members of the Federal-State Joint Board on Universal Service, and
commit to ongoing informal consultations on these issues.
3. Interested parties have indicated that an altered discount
matrix may better serve the schools and libraries program. In response
to the Schools and Libraries NPRM, 67 FR 7327, February 19, 2002,
several commenters asserted that reducing the discount rate would make
applicants more accountable for their funding requests and dissuade
vendors from improperly offering to forgive or refund the 10 percent
contribution required of applicants in the highest discount band. In
addition, commenters stated that altering the discount rate would be an
effective way to increase the availability of funds for eligible
applicants outside the highest discount band. While the Universal
Service Order, 62 FR 32862, June 17, 1997, prioritized support for
entities with the greatest level of economic disadvantage, some
interested parties have suggested that greater emphasis should be given
to the equitable distribution of E-rate funds to eligible applicants
from all discount bands, to ensure that they have comparable access to
advanced telecommunications and information services. Participants in
the Commission's Public Forum on the E-rate program in May 2003 also
suggested that the Commission amend its discount matrix, and USAC's
Task Force on Waste, Fraud, and Abuse has recommended that the discount
level for internal connections be lowered from 90 percent to 80
percent.
4. For these reasons, we seek comment on whether the Commission
should amend the discount matrix to reduce the discounts available in
some or all of the discount bands, including the current 90 percent
discount band. We propose that such a change, if adopted, become
effective in Funding Year 2005. We seek comment on whether the current
discount matrix provides sufficient incentives for schools and
libraries to limit funding requests to services that can be efficiently
used and for vendors to competitively price their services. We also
seek comment on whether it would be appropriate to adjust the discount
matrix in order to expand the reach of funding to lower discount bands.
We note that the rules we adopt in the companion Order, limiting the
availability of support for internal connections to twice every five
years, is intended to make support available to more applicants on a
regular basis. How does this action affect the need to adjust the
discount matrix? We further seek comment on which discount rates in the
matrix, if any, other than the highest discount rate band, should be
reduced. Additionally, we seek comment on whether developing a separate
discount matrix for Priority Two funding would effectively address
issues of waste, fraud, and abuse and expand the reach of funds to a
larger number of schools and libraries. Many parties have suggested
that, at a minimum, the maximum discount level for internal connections
be lowered to 70 percent. What would be the effect of such a change?
While we seek comment generally on revisions to the discount matrix, we
note that we are not seeking comment on whether to combine the existing
Priority One and Priority Two funding categories.
5. We ask that commenters address implementation issues surrounding
a change in the discount matrix. Currently, in the event that there are
not sufficient funds remaining under the annual cap to support all
requests for discounts at a particular discount level, funds are
allocated on a pro rata basis among applicants at that discount level.
Should funds continue to be allocated among all applicants at the
discount level on a pro rata basis, or is there some other means of
allocating the remaining funds? We seek comment on how changes to the
discount matrix should be implemented across all levels of need. Should
certain existing discount levels be combined? For example, should the
90 and 80 percent discount levels be combined? In the alternative,
should each discount level be reduced by a fixed amount? For example,
should each discount level be reduced by 10 percent? Is there some
other method of re-setting other discount levels below the highest
discount level? Finally, we seek comment on how the transition to a new
discount matrix, if adopted, should be implemented in order to minimize
burdens on applicants and disruptions to the program.
B. Competitive Bidding Process
6. We seek comment on the current process of applying for
discounted services. Pursuant to competitive bidding requirements,
eligible schools and libraries that wish to receive support for
discounted services must submit FCC Form 470 to the Administrator. The
FCC Form 470 describes the applicant's telecommunication needs and
notifies service providers of the applicant's intent to contract for
eligible services. After the FCC Form 470 has been posted to the
Administrator's website for 28 days, the applicant may contract for the
provision of services and file an FCC Form 471, requesting discounts
for the services. We seek comment on whether this process typically
results in competitive bids, and ask commenters to elaborate on the
characteristics of recipients that do not ordinarily receive multiple
bids. We seek comment on whether this process continues to suit the
needs of the schools and libraries program, or if a different
application process would better suit the program's needs. We
specifically request that commenters discuss how the current process
and any proposed processes address the Commission's goal of minimizing
waste, fraud, and abuse in the program, while encouraging the benefits
of competition as set out in the Universal Service Order.
7. A number of parties have suggested that the current Form 470
posting process should be modified for certain types of services. For
instance, one participant in the Commission's public forum on the ways
to improve the administration of the schools and libraries mechanism
suggested that the Form 470 process be eliminated for requests for
funding local telephone service. Others suggest that the FCC simplify
the application process for applications that only seek funding for
local and long distance service (including cell phone service), or that
seek to continue an existing telecommunications service or Internet
access service. We seek comment on whether it would serve our goals to
simplify or eliminate the current FCC Form 470 posting process in such
situations. What other mechanisms would ensure that our objective of
ensuring that applicants are aware of potential service providers and
select reasonably priced services is met? What would be the costs and
benefits of such a change?
8. We also seek comment on how we can ensure that applicants select
cost effective services in situations in which no entity, or only one
entity, responds to a Form 470 posting. In some situations, there may
be only one service provider capable of, or willing to, provide the
requested service. How can we ensure that the prices for such services
are reasonable, and do not waste scarce universal service funds? Should
we adopt bright line rules that would impose limits on the amount of
discounts that could be available in such situations?
9. We further seek comment on whether the Commission, as a
condition of support, should require that each
[[Page 6231]]
service provider certify that the prices in its bid have been
independently developed. Such a certification could be modeled after
the certificate of independent price determination required under
federal acquisition regulations. A fair and open competitive bidding
process is critical to preventing waste, fraud, and abuse of program
resources. Adopting a certification requirement would ensure that
service providers are fully aware that they may not communicate with
other service providers in a way that subverts the competitive bidding
process. Moreover, service providers that violate a non-collusion
certification will, in many instances, also violate federal antitrust
laws. Requiring certifications of independent pricing would better
enable the Commission or other government agencies to enforce the
Commission's rules and to seek criminal sanctions where appropriate. We
also seek comment on whether the Commission's rules should specifically
require that records related to the competitive bidding process for
services must be maintained by both the recipient and the service
provider for a period of five years.
C. Definition of Rural Area
10. We seek comment on modifications to the definition of ``rural
area'' for the schools and libraries mechanism. Currently, an area
qualifies as rural under our rules for the schools and libraries
support mechanism if it is located in a non-metropolitan county as
defined by the Office of Management and Budget or is specifically
identified in the Goldsmith Modification to 1990 Census data published
by the Office of Rural Health Care Policy (ORHP). We understand,
however, that OHRP no longer utilizes the definition adopted by the
Commission in 1997, and that there will be no Goldsmith Modification to
the most recent 2000 Census data.
11. We seek comment on whether we should adopt a new definition of
rural area for the schools and libraries program, and, if so, what that
new definition should be. We seek comment on whether there are
definitions for rural areas used by other government agencies that
would be appropriate for the schools and libraries program. In addition
to describing any proposed new definitions, we ask commenters to
address the specific proposals that have already been raised in the
rural health care proceeding. In particular, several commenters in the
rural health care proceeding suggest that the Commission adopt the
rural designation system currently utilized by ORHP, the Rural Urban
Commuting Area (RUCA) system. Others propose to define rural as non-
urbanized areas, as specified by the Census Bureau. We also recently
sought comment on the definition of ``rural area'' in the context of
increasing flexibility and the deployment of spectrum-based services in
rural areas. There we identified and sought comment on the following
potential definitions of ``rural area,'' in addition to the ones
already identified above: (1) Counties with a population density of 100
persons or fewer per square mile; (2) Rural Service Areas; (3) non-
nodal counties within an Economic Area; (4) the definition of ``rural''
used by the Rural Utility Service for its broadband program; (5) the
definition of ``rural'' based on census tracts as outlined by the
Economic Research Service of the USDA; and (6) any census tract that is
not within ten miles of any incorporated or census-designated place
containing more than 2,500 people, and is not within a county or county
equivalent which has an overall population density of more than 500
persons per square mile of land. Finally, some commenters in that
proceeding assert that if the Commission adopts a new definition of
rural, it should grandfather existing areas that currently qualify as
rural area, if they would no longer qualify under the new definition.
12. Commenters are encouraged to describe the effects of any new
definition on the reach of the schools and libraries program, e.g., how
many existing rural areas would become non-rural and vice versa, and
whether and how the Commission should consider any such changes in
adopting a new definition for ``rural area.'' We also seek comment on
whether it is necessary or desirable to use the same definition of
``rural'' for both the schools and libraries program and rural health
care program.
D. Definition of Internet Access
13. In the Schools and Libraries NPRM, the Commission sought
comment on whether modifying our rules governing the funding of
Internet content would improve program operation consistent with our
other goals of ensuring a fair and equitable distribution of benefits
and preventing waste, fraud, and abuse. In particular, the Commission
sought comment on whether to permit funding for an Internet access
package that includes content if that package is the most cost
effective form of Internet access. Comments we received in response to
the Schools and Libraries NPRM indicated that parties had widely
varying views of what should be viewed as ``content,'' although many
parties expressed concern about providing funding for Internet access
bundled with subject matter content. The record developed on this
issue, in conjunction with recent changes made in the rural health care
program, leads us to seek more focused comment on whether we should
alter the definition of Internet access used for the schools and
libraries program. Support for Internet access under the schools and
libraries program is provided only for ``basic conduit access to the
Internet.'' Support in the Internet access category has not been
provided for virtual private networks, nor has it been provided for
Internet access services that enable communications through private
networks. In our recent Rural Health Care Order, we concluded that the
definition currently used in the schools and libraries context was too
limited for the rural health care program, because it precludes support
for features that provide the capability to generate or alter the
content of information. We concluded that adopting such a limitation in
the rural health care context would significantly undercut the utility
of providing support for Internet access to rural health care
providers, because the ability to alter and interact with information
over the Internet is a functionality that could facilitate improved
medical care in rural areas.
14. We now seek comment on whether we should amend our definition
of Internet access in the schools context to conform to the definition
recently adopted for the rural health care mechanism. The Administrator
has utilized cost allocation to ensure that support is not provided for
features deemed ineligible under the Commission's definition of
Internet access in the schools context, and also has provided discounts
on services that provide ineligible features when that ineligible
portion is provided on an ancillary basis. While we conclude that this
has been a reasonable way to implement our rules in an administratively
workable fashion, we are concerned that the definition adopted in 1997
may unintentionally preclude support for features of Internet access
that would provide substantial benefits to school children and library
patrons in the United States. We are concerned that the rule adopted
six years ago may not adequately address the full ranges of features
and functionalities in Internet access services that are available in
the marketplace today. Moreover, we seek comment on whether amending
the current definition of Internet access
[[Page 6232]]
would simplify and streamline program administration. We also seek
comment on how broadening the definition of Internet access (a Priority
One service) will impact the availability of funds for Priority Two
services. To the extent commenters argue that the definition of
Internet access should differ for the schools and libraries program,
and the rural health care program, they should provide specific
arguments outlining the legal, policy, or technical reasons for that
position.
E. Wide Area Networks
15. In the Schools and Libraries NPRM, the Commission sought
comment on whether to modify its policies regarding the funding of
Priority One services (telecommunications service and Internet access)
that include service provider charges for capital investments for wide
area networks. The record we received demonstrated a wide range of
views on what changes, if any, should be made in this area.
16. In light of our decision to impose limitations on funding of
internal connections, we recognize that there may be even greater
incentives than before for service providers to characterize charges
for facilities that also could be viewed as internal connections as
Priority One services. We believe it desirable, therefore, to seek more
focused comment on specific proposals in this area to ensure that funds
are distributed in a fair and equitable fashion. If we adopt rules in
this area, we anticipate that those rules would be effective no earlier
than Funding Year 2005. We seek comment on the advantages and
disadvantages of the proposals set forth.
17. We seek comment on whether to refine a standard for determining
whether expenditures that subsidize infrastructure investment, either
on-premises or off-premises, may properly be viewed as Priority One
services. In particular, we seek comment on whether we should adopt a
rule that would limit recipients from receiving discounts for service
provider upfront capital investments to the extent those capital
investments exceed 25 percent of the funding request for the service in
question. Such a rule could serve to spread funding for Priority One
services more evenly across all recipients, and could limit the extent
to which the universal service fund is used to finance significant
service provider infrastructure investment.
18. In the Brooklyn Order, the Commission determined that
recipients may receive discounts on non-recurring charges associated
with capital investment made by a service provider in an amount equal
to the investment prorated equally over a term of at least three years.
We now seek focused comment on whether we should adopt a rule that
discounts for any service provider charges for capital investment of
$500,000 or more must be prorated over a period of at least five years.
Like the other proposal, such a rule could serve to spread funding for
Priority One services more evenly across all recipients, and could
limit the extent to which the universal service fund is used to finance
significant service provider infrastructure investment.
19. We also take this opportunity to address other issues related
to the provision of service over wide area networks. Under our current
rules, schools and libraries may receive support to obtain
telecommunications services using lit fiber. Schools and libraries may
also receive discounts when they obtain Internet access that uses lit
fiber. In order to receive support for services using lit fiber as a
Priority One service, the school or library must purchase a functioning
service from either a telecommunications service provider or internet
access provider, which in turn is responsible for ensuring that both
the fiber and the equipment to light the fiber are provided. If a
school or library enters a contract to lease unlit fiber, and obtain
telecommunications service or Internet access using lit fiber, it must
segregate the cost of the unsupported unlit fiber from the cost of the
supported lit fiber service in its application for support.
20. We seek comment on the provision of funding for unlit (dark)
fiber under the schools and libraries support mechanism. We note that
the Commission has addressed dark fiber in several different contexts.
We seek comment on whether we should permit funding for dark fiber,
pursuant to section 254(h), to provide additional flexibility to
applicants in meeting their communications needs. We also seek comment
on whether any limitations should be adopted to preclude discounts on
the full cost of dark fiber network buildout when the applicant will
not be utilizing the full capacity of that network.
F. Recovery of Funds
21. In 1999, the Commission adopted the Commitment Adjustment
Order, which directed the Administrator to recover funding erroneously
committed to schools and libraries in violation of the
Telecommunications Act of 1996. The Commission adopted a companion
order on the same day granting a limited waiver of four Commission
rules to first year applicants who had received commitments and
disbursements in violation of Commission rules. Shortly thereafter,
pursuant to the Commitment Adjustment Order, USAC submitted to the
Commission its plan to collect universal service funds that were
erroneously disbursed in the first year of the program in violation of
the statute. Subsequently, in 2000, the Commission adopted with minor
modifications USAC's plan to implement the requirements of the
Commitment Adjustment Order. In that Order, the Commission also
emphasized that the recovery plan ``is not intended to cover the rare
cases in which the Commission has determined that a school or library
has engaged in waste, fraud or abuse.'' The Commission stated that it
would address such situations on a case-by-case basis.
22. At the time the Commission adopted the Commitment Adjustment
Order, USAC had been distributing funds through the schools and
libraries universal service support mechanism for approximately one
year. The Commission and USAC then faced a limited range of situations
in which errors had occurred requiring the recovery of funds. Since
then, through the audit process, the Commission and USAC have become
aware of additional scenarios that may require recovery of funds due to
errors made by applicants and/or service providers. While the
Commitment Adjustment Implementation Order implemented procedures,
consistent with the Commission's debt collection rules, for recovery of
funds that were disbursed in violation of statutory requirements, the
Commission has not comprehensively addressed the question of what
recovery procedures would be appropriate in situations where it is
determined that funds have been disbursed in violation of particular
programmatic rules that do not implicate statutory requirements.
Likewise, the Commission has not addressed the question of what
procedures are needed to govern the recovery of funds that have been
committed or disbursed in situations later determined to involve waste,
fraud or abuse.
23. In administering the schools and libraries program, we have
become aware of instances in which funds were disbursed erroneously,
and, depending upon the circumstances surrounding the particular error
as well as the procedure or rule implicated, we determined whether
recovery was appropriate. In light of these experiences, we now
consider whether we should implement procedures or adopt rules
governing fund recovery across particular
[[Page 6233]]
situations and, more generally, whether additional safeguards or
procedures are needed to address the matter of erroneously disbursed
funds.
24. In particular, we ask whether we should adopt specific recovery
rules for funds that are disbursed in violation of statutory
requirements. We also seek comment on whether the Commission should
implement procedures or adopt rules for funds that are disbursed in
violation of one or more programmatic rules or procedures under the
schools and libraries program or in situations involving waste, fraud
or abuse. If so, we ask whether we should adopt for all instances of
improperly disbursed funds, procedures comparable to those adopted in
the Commitment Adjustment Implementation Order, or whether we should
modify any of those procedures. We note that, through petitions for
reconsideration of the Commitment Adjustment Order and in comments
filed in support of those petitions, particular service providers have
argued that the Commission should recover erroneously disbursed funds
from the party that received the benefit of the disbursement,
specifically the school or library. Although the Commission continues
to believe that there are valid reasons for seeking recovery only from
service providers, we ask whether there are any circumstances under
which recovery would be more appropriately sought from a school or
library applicant. At this time we do not resolve the specific issues
raised in the pending petitions for reconsideration. Instead, we seek
to further develop the record in this area in light of particular
issues that have come to our attention and as to which we seek comment
in this notice.
25. We note that in some circumstances, there may be a series of
rule violations that neither collectively nor individually implicate
the full amount of the funding commitment. In the event that the full
amount of the funding commitment has been disbursed under such
circumstances, we seek comment on what circumstances would make
recovery of the full amount of the funding commitment appropriate or
inappropriate. We seek comment specifically on whether a pattern of
systematic noncompliance with Commission rules warrants recovery of the
full amount disbursed, irrespective of the dollars associated with
specific audit findings. We note that, unlike errors resulting in
statutory violations, the Commission may waive non-compliance with
regulations in appropriate circumstances. We recognize that some errors
made by applicants and/or service providers may not violate the
statute, may be minor in nature and may not affect the integrity of or
otherwise undermine policies central to administration of the program.
We invite comment on whether there are situations in which such errors
would warrant a Commission decision not requiring the recovery of
funds. For example, should we waive recovery if the dollars at issue
are de minimis, either on absolute dollar or percentage of disbursement
basis, and if so, what dollar level or percentage would be an
appropriate threshold for deeming a violation to be de minimis? Parties
advocating such a position should describe what mechanism the
Commission should use to reach such a result, such as waiving the rules
that are not statutory, are minor and do not affect program integrity,
focusing particularly on how such a result could be achieved with
administrative ease.
26. In addressing the issues, we also invite commenters to explain
whether any additional policies or rules directed at circumstances
involving waste, fraud and abuse would be necessary, or whether
procedures we may adopt in response to our questions will be sufficient
in correcting waste, fraud and abuse. In doing so, parties should
consider whether certain violations are more critical in our attempts
to control waste, fraud and abuse than others. Are the circumstances
where waste, fraud and abuse are found the type that should result in
recovery of funds from the entity that is responsible for the waste,
fraud and abuse? How should we proceed if both the applicant and the
service provider are culpable for such misconduct? We seek proposals
that include detailed procedures for dealing with waste, fraud and
abuse cases.
27. We also seek comment on whether we should implement other
measures to ensure service provider and applicant accountability. In
particular, we seek comment on whether we should implement procedures
or adopt rules to defer action on any additional funding request
involving a beneficiary for whom there is an outstanding commitment
adjustment proceeding. Under such a policy, no discounts would flow to
the beneficiary in subsequent years until there was full satisfaction
of the outstanding commitment adjustment. We also seek comment on
whether any applicant that has previously been subject to a commitment
adjustment proceeding should be subjected to more rigorous scrutiny
before receiving commitments in the future. If we were to implement
such a policy, what additional showing should be required of the
applicant in subsequent years, and how long should the entity be
subjected to such enhanced scrutiny?
28. Commenters should provide discrete proposals with examples or
data to support their suggestions.
G. Other Actions To Reduce Waste, Fraud, and Abuse
29. We seek comment on a number of proposals intended to improve
the abilities of the Commission and the Administrator to identify and
enforce violations of the Commission's rules and, thereby, to reduce
waste, fraud, and abuse in the schools and libraries universal service
mechanism.
30. Cost-Effective Funding Requests. We seek comment on whether we
should codify additional rules to ensure that applicants make informed
and reasonable decisions in deciding for which services they will seek
discounts. Currently, our rules specify that, in selecting a service
provider, a recipient must carefully consider all bids submitted and
must select the most cost-effective service offering. Moreover, the
Universal Service Order makes clear that applicants must request
services based on an assessment of their reasonable needs. Our rules do
not expressly require, however, that the applicant consider whether a
particular package of services are the most cost effective means of
meeting its technology needs. Nor do our rules expressly establish a
bright line test for what is a ``cost effective'' service. Would it be
beneficial and administratively feasible to develop such a test, or,
for example, a benchmark or formula for ``cost-effective'' funding
requests, such as a specified dollar amount per student or per library
patron for specified types of service? Should we adopt a ceiling on the
total amount of annual funding that an applicant can request? If so,
how would such a ceiling is calculated? Are there other rule changes
that would ensure applicants are not requesting discounts for services
beyond their reasonable needs?
31. Recordkeeping Requirements. We seek comment on whether to amend
our rules governing the maintenance of records related to the receipt
of universal service discounts. Currently, the Commission rules require
each entity receiving supported services to keep records related to the
receipt of discounted services similar to those that the entity
maintains for other purchases, but do not specify how long such records
should be maintained. Nor do our rules expressly require all entities
to maintain records to demonstrate compliance with all rules. Recent
beneficiary audits conducted by USAC's independent auditor identify a
number
[[Page 6234]]
of instances in which the independent auditor was unable to perform
certain procedures due to lack of documentation. We seek comment on
whether to amend our rules to require that all records related to the
receipt of or delivery of discounted services, sufficient to
demonstrate compliance with the Commission's rules governing the
schools and libraries mechanism, be maintained by the beneficiary for a
period of five years after the last day of the delivery of the
discounted services. We also seek comment on what types of documents
would be sufficient to demonstrate compliance.
32. In addition, the Commission's rules require service providers
to keep and retain records of rates charged to and discounts allowed
for entities receiving supported services. We seek comment on requiring
that service providers retain all records related to the delivery of
discounted services for a period of five years after the completion of
the discounted services. Further, we seek comment on a requirement that
service providers comply with random audits or reviews that the
Commission or USAC may undertake periodically to assure program
compliance, including identifying the portions of applicant's bills
that represent the costs of services provided to eligible entities for
eligible purposes. In accordance with this proposed requirement, we
also seek comment on requiring beneficiaries to authorize the release
of such information.
33. Commenters are specifically requested to address the impact
that these rule changes would have on the Commission's ability to
enforce its substantive rules and reduce waste, fraud, and abuse in the
schools and libraries universal service program. Commenters are also
requested to identify with particularity any additional recordkeeping
requirements that would improve the Commission's ability to enforce its
rules in the schools and libraries program.
34. Consultants and Outside Experts. We seek comment on whether
applicants should be required to identify any consultants or other
outside experts, whether paid or unpaid, that aid in the preparation of
the applicant's technology plan or in the applicant's procurement
process. Additionally, we seek comment on whether consultants and other
outside experts offering their services to applicants should be
required to register with USAC and to disclose any potential conflicts
of interests derived from relationships with service providers.
Identifying these consultants and outside experts could facilitate the
ability of the Commission, and law enforcement officials, to identify
and prosecute individuals that may seek to manipulate the competitive
bidding process or engage in other illegal acts. We also seek comment
on whether we should adopt a rule that would prohibit an entity that
seeks to become a service provider from providing any form of
technology planning or procurement management assistance to applicants.
Under such a rule, any entity that provides management support
services, technical assistance, consulting services, assistance in
technical evaluations, or systems engineering services to a particular
recipient would be barred from competing for the contracts for eligible
services with that recipient.
35. Distribution of Support Payments. We seek comment on whether
the Commission should amend its rules to codify certain existing
administrative procedures related to the payment of support for
discounted services. There are two methods by which support for
discounts is distributed. One method is for the service provider to
submit an invoice to the Administrator, seeking payment for the
discounted portion of the supported service using FCC Form 474. The
other method is for the recipient of the discounted services to pay the
service provider and then seek reimbursement from the Administrator
using FCC Form 473. Under either method, the Administrator requires
that a completed Service Provider Annual Certification (or FCC Form
473) must be filed in order for payment to be made. We seek comment on
whether this procedure should be codified in the Commission's rules. We
also seek comment on whether the Commission should codify rules
regarding the establishment of deadlines for service providers to file
invoices with the Administrator. The timely receipt and payment of
invoices is extremely important to the administration of the program in
accordance with the Commission's rules. Accordingly, we seek comment on
whether to codify the Administrator's existing policy not to provide
support for untimely filed invoices.
36. USAC provides an extension of the deadline to file invoices
under certain conditions. Under current USAC procedures, these
circumstances include: authorized service provider changes; authorized
service substitutions; no timely notice to USAC (e.g., the service
providers' Form 486 Notification Letter is returned to USAC as
undeliverable); USAC errors that result in a late invoice; USAC delays
in data entering a form that ultimately result in a late invoice;
documentation requirements that necessitate third party contact or
certification; natural or man-made disasters that prevent timely filing
of invoices; good Samaritan BEARs; and circumstances beyond the service
providers control. We seek comment on whether to codify the described
procedures providing for an extension of the deadline to file invoices.
37. Technology Plans. We seek comment on whether the Commission
should revise its rules regarding technology plans. To ensure
applicants make a bona fide request for services, the Commission
requires applicants to undertake a technology assessment before making
a request for services. Section 54.504(b)(2)(vii) states that in its
FCC Form 470 the applicant must certify that it has a technology plan
that has been certified by its state, the Administrator, or an
independent entity approved by the Commission. The instructions for FCC
Form 470 permit applicants to certify that their technology plan will
be approved by the relevant body no later than the time when service
commences. The Commission adopted specific requirements for information
that must be included in the FCC Form 470, but did not adopt specific
rules addressing what should be included in a technology plan. In the
Universal Service Order, however, the Commission set forth what
applicants should address in their technology plans, which USAC
implemented in its guidelines for technology plans. We seek comment on
whether we should codify USAC's current guidelines regarding technology
plans. Should we require that, as part of the technology plan process,
applicants analyze the cost of leasing versus purchasing E-rate
eligible products and services? Should we require the applicant to
consider the most cost-effective way to meet its educational
objectives? In addition, we seek comment on whether the Commission's
technology planning requirements should be amended to be made more
consistent with the technology planning goals and requirements of the
U.S. Department of Education and the U.S. Institute for Museum and
Library Services. We also seek comment on whether the Commission's
technology planning requirements could be strengthened through
additional or different qualifications for entities, including states,
which approve technology plans.
38. Prevention of Unauthorized Applications by Subunits. We seek
comment on whether the Commission should adopt rules to prevent
subunits, such as individual schools or library branches, from filing
applications
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without the authorization of the central authorities over those
subunits, such as school districts and library systems. We also seek
comment on how such restrictions should be implemented, if adopted. For
example, should an applicant be required to certify that it has the
appropriate authorization from its central authority, or should a
central authority be permitted to request the Administrator to reject
any application filed by one of its subunits?
39. Use of Surveys to Determine School Lunch Eligibility. The
Universal Service Order stated that a school may use federally-approved
alternative mechanisms which rely on actual counts of low-income
children to determine the level of poverty for purposes of the schools
and libraries universal service discount mechanism. USAC implemented
this provision by permitting schools to collect this information from
surveys. Currently, USAC procedures require a response rate of at least
50 percent to ensure a statistically valid sample to project the
percentage of eligibility for all students in the school. We seek
comment on whether to codify this procedure, and if so, should we alter
the required response rate? Is a 50 percent response rate higher than
necessary to ensure a statistically valid sample? We seek to streamline
program administration in this area while protecting against any
potential abuse. Should the required response rate depend on the size
of the population being surveyed?
H. Miscellaneous
40. Determining Whether Rates Are Affordable. We seek comment
generally on how we can ensure that we continue to meet the
requirements of section 254 in an efficient and equitable manner.
Congress mandated that schools and libraries across the United States
have access to advanced telecommunications and information services at
affordable rates. As the expert agency charged with this critical task,
we believe it important to consider periodically how we should
determine what funding is necessary to ensure access at ``affordable''
rates. Give the myriad of service offerings in today's marketplace, how
can we measure our progress in ensuring ``affordable'' access?
41. Priority for Applicants that Have Not Achieved Connectivity. We
note that, in 1996, prior to implementation of the E-rate program, 14
percent of public school instructional rooms (i.e., classrooms) were
connected to the Internet. According to the most recently available
data, in 2002, 92 percent of public school classrooms were connected to
the Internet. While considerable progress has been made in achieving
the congressional goal of enhancing access of school classrooms and
libraries to advanced telecommunications and information services, we
are concerned that our rules as currently structured may preclude full
attainment of that goal. As noted, a number of commenters in this
proceeding have suggested that altering the discount rate would be an
effective way to increase the availability of funds for eligible
applicants outside the highest discount band. We seek comment on
whether other measures should be adopted to further the objectives set
forth in section 254(h)(2)(A). In particular, we seek comment on
whether we should provide priority for internal connections to those
applicants that have not yet achieved Internet connectivity in their
classrooms or libraries. If we were to adopt such a proposal, should
the priority for funding be targeted to those entities where 50 percent
or more of students are eligible for the school lunch program? Under
such a proposal, any entity in an area where 50 percent or more of
students are eligible for free school lunch that certifies it has not
yet implemented internal connections to achieve Internet connectivity
in any classrooms or in the library would receive funding for internal
connections in advance of all applicants seeking funding for internal
connections that certify that they have implemented internal
connections to achieve Internet connectivity in multiple classrooms or
locations. Are there other rule changes that would ensure that all
entities are able to provide access to the Internet from individual
classrooms or the library?
III. Procedural Matters
A. Initial Paperwork Reduction Act of 1995 Analysis
42. This Second Further Notice of Proposed Rulemaking (Second
FNPRM) contains either a proposed or modified information collection.
As part of a continuing effort to reduce paperwork burdens, we invite
the general public and the Office of Management and Budget (OMB) to
take this opportunity to comment on the information collections
contained in this Second FNPRM, as required by the Paperwork Reduction
Act of 1995, Pub. L. 104-13. Public and agency comments are due at the
same time as other comments on this Second FNPRM; OMB comments are due
April 12, 2004. Comments should address: (a) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information
shall have practical utility; (b) the accuracy of the Commission's
burden estimates; (c) ways to enhance the quality, utility, and clarity
of the information collected; and (d) ways to minimize the burden of
the collection of information on the respondents, including the use of
automated collection techniques or other forms of information
technology.
B. Initial Regulatory Flexibility Analysis
43. As required by the Regulatory Flexibility Act (RFA), the
Commission has prepared this Initial Regulatory Flexibility Analysis
(IRFA) of the possible significant economic impact on small entities by
the policies and rules proposed in the Second FNPRM. Written public
comments are requested on this IRFA. Comments must be identified as
responses to the IRFA and must be filed by the deadlines for comments
on the Second FNPRM. The Commission will send a copy of this Second
FNPRM, including this IRFA, to the Chief Counsel for Advocacy of the
Small Business Administration (SBA). In addition, the Second FNPRM and
IRFA (or summaries thereof) will be published in the Federal Register.
1. Need for, and Objectives of, the Proposed Rules
44. In the Second FNPRM, we seek comment on whether the current
discount matrix provides sufficient incentives for schools and
libraries to limit funding requests to services that can be efficiently
used and whether modifying the discount matrix would make funds
available to a greater number of schools and libraries. Further, we ask
whether the Commission should adopt rules adjusting the discount matrix
for certain supported services. To the extent that commenters support
creating a separate discount matrix for priority two services, we seek
comment on the structure and implementation issues associated with a
new discount matrix. In light of the limitations placed on applications
for internal connection discounts, which are Priority Two services, we
seek comment on measures to deter the mischaracterization of internal
connections as Priority One services.
45. In addition, we seek comment on whether the current process for
applying for discounted services sufficiently addresses the
Commission's goals of minimizing waste, fraud, and abuse in the
program, while encouraging the benefits of competition as set out in
the Universal Service Order. In that regard, we solicit comment on the
current competitive
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bidding process and the efficiency and effectiveness of using Form 470
and requested comment regarding any means by which the Commission could
ensure that applicants select cost-effective services. Also, we seek
further comment whether the Commission, as a condition of support,
should require that each service provider certify that the prices in
its bid have been independently developed. Further, we request comment
on whether the Commission's rules should specifically require that
records related to the competitive bidding process for services be
maintained by both the recipient and service provider for a period of
five years.
46. Next, we seek comment on modifications to the definition of
``rural area'' for the schools and libraries mechanism and ask whether
it would be necessary or desirable to use the same definition of
``rural'' for both the schools and libraries program and rural health
care program. Similarly, we seek comment whether the definition of
Internet access in the schools context should be changed to mirror the
definition of Internet access recently adopted in the Rural Health Care
Order.
47. In light of the restrictions imposed on receiving discounts for
internal connections, we seek comment asking whether any measures
should be taken to evaluate service provider charges for capital
investments for wide area networks, a Priority One service. In that
regard, we seek comment whether expenditures that subsidize
infrastructure investment, either on-premises or off-premises, may
properly be viewed as Priority One services. We also seek comment on
funding for unlit (dark) fiber under the E-rate program. In addition,
we ask whether we should adopt specific recovery rules for funds--
entire or partial commitments--that are disbursed in violation of the
statute or programmatic rules or procedures. In that connection, we
seek comment regarding measures to prevent waste, fraud, and abuse
associated with improper disbursement of E-rate funds.
48. We seek comment on various measures to abate waste, fraud and
abuse in the schools and libraries universal service mechanism,
including whether a rule should be adopted requiring that all records
related to the receipt of or delivery of discounted services be
maintained by beneficiaries and service providers for a period of five
years after the completion of the discounted services. In addition, we
solicit comment whether rules defining ``cost-effective'' service
should be adopted. Also, we seek comment whether applicants should be
required to identify any consultants or other outside experts, whether
paid or unpaid, that aid in the preparation of the applicant's
technology plan or in the applicant's procurement process. In addition,
we solicit comment on the adoption of a rule requiring the filing of a
Service Provider Annual Certification (or FCC Form 473) with the
Administrator for remittance of payment. We also seek comment as to
whether the Commission should codify rules establishing deadlines for
service providers to file invoices with the Administrator and whether
the Administrator's existing policy to deny support for untimely filed
invoices, except in limited circumstances, should be codified. In an
effort to further reduce waste, fraud and abuse in the E-rate program,
we request comment whether current guidelines from the Universal
Service Order and USAC regarding the content of the applicants'
technology plans should be adopted as Commission rules. We also ask for
comments whether the Commission's technology planning goals should be
consistent with the requirements of the U.S. Department of Education
and the U.S. Institute for Museum and Library Services. In addition, we
seek comment whether the Commission should adopt rules to prevent
individual schools and libraries from submitting applications without
coordination with or authorization from the central authorities, namely
school districts and library systems. We solicit comment on whether
USAC's policy of accepting surveys to determine National School Lunch
eligibility should be codified.
49. Finally, we seek comment whether our rules should be modified
to ensure a funding priority for applicants that have not yet achieved
internet connectivity in their classrooms or libraries. We also seek
comment generally on whether any rules should be adopted to ensure
affordable rates for eligible services and ensure access to eligible
services.
2. Legal Basis
50. The legal basis for the Second FNPRM is contained in sections 1
through 4, 201 through 205, 254, 303(r), and 403 of the Communications
Act of 1934, as amended, and Sec. 1.411 of the Commission's rules.
3. Description and Estimate of the Number of Small Entities to Which
Rules Will Apply
51. We have described in detail in the Final Regulatory Flexibility
Analysis in the companion Order in this proceeding, the categories of
entities that may be directly affected by our proposals. For this
Initial Regulatory Flexibility Analysis, we hereby incorporate those
entity descriptions by reference.
4. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements
52. With one exception, the specific proposals under consideration
in this Second FNPRM would not, if adopted, result in additional
recordkeeping requirements for small businesses. With regard to the one
exception, we propose adoption of a rule that requires each entity
receiving supported services to keep all records related to the receipt
of or delivery of discounted services for a period of five years after
implementation of the discounted services. This proposal includes
additional recordkeeping because the current Commission rule requires
each entity receiving supported services to keep records related to
receipt of discounted services similar to those that the entity
maintains for other purchases and does not specify the time period for
which such records must be maintained. Thus, the revised rule means
that the records need not be kept beyond the five year period.
53. We have sought comments regarding the other proposed rules;
however, new recordkeeping requirements are not involved.
5. Steps Taken To Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
54. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its proposed approach,
which may include the following four alternatives (among others): (1)
The establishment of differing compliance and reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance or reporting requirements under the rule for small entities;
(3) the use of performance, rather than design, standards; and (4) an
exemption from coverage of the rule, or part thereof, for small
entities.
55. In the Second FNPRM, we seek comment regarding the adoption of
rules requiring addition recordkeeping for each entity receiving
discounted services. Moreover, we seek comments asking for
identification of any recordkeeping measures that would improve the
Commission's ability to enforce its rules governing waste, fraud, and
abuse in the schools and libraries program. In that regard, we note the
findings by recent beneficiary audits
[[Page 6237]]
conducted by KPMG, which indicate that better documentation would
improve the ability to audit beneficiaries. Since abatement of waste,
fraud, and abuse in the schools and libraries program is the objective,
excluding small entities from such a requirement would contravene that
objective and present a loophole that could damage the integrity of the
program. Decreasing the likelihood of waste, fraud, and abuse preserves
program funding for discounts to all eligible schools and libraries. We
invite comment on this recordkeeping requirement and ask that those
parties who object to the proposed requirement offer an alternative and
explain the merits of their alternative.
6. Federal Rules that may Duplicate, Overlap, or Conflict With the
Proposed Rules
56. None.
C. Comment Filing Procedures
57. We invite comment on the issues and questions set forth in the
Second FNPRM and Initial Regulatory Flexibility Analysis contained
herein. Pursuant to applicable procedures set forth in Sec.Sec. 1.415
and 1.419 of the Commission's rules, interested parties may file
comments on or before March 11, 2004, and reply comments on or before
April 12, 2004. All filings should refer to CC Docket No. 02-6.
Comments may be filed using the Commission's Electronic Comment Filing
System (ECFS) or by filing paper copies.
58. Comments filed through the ECFS can be sent as an electronic
file via the Internet to http://www.fcc.gov/cgb/ecfs/. Generally, only
one copy of an electronic submission must be filed. If multiple docket
or rulemaking numbers appear in the caption of this proceeding,
however, commenters must transmit one electronic copy of the comments
to each docket or rulemaking number referenced in the caption. In
completing the transmittal screen, commenters should include their full
name, U.S. Postal Service mailing address, and the applicable docket or
rulemaking number. Parties may also submit an electronic comment by
Internet e-mail. To receive filing instructions for e-mail comments,
commenters should send an e-mail to ecfs@fcc.gov, and should include
the following words in the body of the message, ``get form .'' A sample
form and directions will be sent in reply.
59. Parties who choose to file by paper must file an original and
four copies of each filing. If more than one docket or rulemaking
number appears in the caption of this proceeding, commenters must
submit two additional copies for each additional docket or rulemaking
number.
60. Filings can be sent by hand or messenger delivery, by
commercial overnight courier, or by first-class or overnight U.S.
Postal Service mail (although we continue to experience delays in
receiving U.S. Postal Service mail).
61. The Commission's contractor, Natek, Inc., will receive hand-
delivered or messenger-delivered paper filings for the Commission's
Secretary at 236 Massachusetts Avenue, NE., Suite 110, Washington, DC
20002.
--The filing hours at this location are 8 a.m. to 7 p.m.
--All hand deliveries must be held together with rubber bands or
fasteners.
--Any envelopes must be disposed of before entering the building.
--Commercial overnight mail (other than U.S. Postal Service Express
Mail and Priority Mail) must be sent to 9300 East Hampton Drive,
Capitol Heights, MD 20743.
--U.S. Postal Service first-class mail, Express Mail, and Priority Mail
should be addressed to 445 12th Street, SW., Washington, DC 20554.
--All filings must be addressed to the Commission's Secretary, Office
of the Secretary, Federal Communications Commission.
62. Parties filing electronic media should be advised that the
Commission released a public notice on August 22, 2003 providing new
guidance for mailing electronic media. In brief, electronic media
should NOT be sent through USPS because of the eradiation process USPS
mail must undergo to complete delivery. Hand or messenger delivered
electronic media for the Commission's Secretary should be addressed for
delivery to 236 Massachusetts Avenue, NE., Suite 110, Washington, DC
20002, and other messenger-delivered electronic media should be
addressed for delivery to 9300 East Hampton Drive, Capitol Heights, MD
20743.
63. Parties who choose to file by paper should also submit their
comments on diskette to Sheryl Todd, Telecommunications Access Policy
Division, Wireline Competition Bureau, Federal Communications
Commission, 445 12th Street, SW., Room 5-B540, Washington, DC 20554.
Such a submission should be on a 3.5 inch diskette formatted in an IBM
compatible format using Microsoft Word or compatible software. The
diskette should be accompanied by a cover letter and should be
submitted in ``read only'' mode. The diskette should be clearly labeled
with the commenter's name, proceeding (including the docket number, in
this case, CC Docket No. 02-6), type of pleading (comment or reply
comment), date of submission, and the name of the electronic file on
the diskette. The label should also include the following phrase ``Disk
Copy--Not an Original.'' Each diskette should contain only one party's
pleading, preferably in a single electronic file. In addition,
commenters must send diskette copies to the Commission's copy
contractor, Natek, Inc., Portals II, 445 12th Street, SW., Room CY-
B402, Washington, DC 20554.
64. Regardless of whether parties choose to file electronically or
by paper, parties should also file one copy of any documents filed in
this docket with the Commission's copy contractor, Qualex,
International Inc., Portals II, 445 12th Street, SW., Room CY-B402,
Washington DC 20554. Comments and reply comments will be available for
public inspection during regular business hours in the FCC Reference
Center, Room CY-A257, 445 12th Street, SW., Washington, DC 20554. In
addition, the full text of this document is available for public
inspection and copying during regular business hours at the FCC
Reference Information Center, Portals II, 445 12th Street, SW., Room
CY-A257, Washington, DC 20554. This document may also be purchased from
the Commission's duplicating contractor, Qualex International, Inc.,
Portals II, 445 12th Street, SW., Room CY-B402, Washington, DC 20554,
telephone 202-863-2893, facsimile 202-863-2898, or via e-mail
qualexint@aol.com.
65. Comments and reply comments must include a short and concise
summary of the substantive arguments raised in the pleading. Comments
and reply comments must also comply with Sec. 1.49 and all other
applicable sections of the Commission's rules. We direct all interested
parties to include the name of the filing party and the date of the
filing on each page of their comments and reply comments. All parties
are encouraged to utilize a table of contents, regardless of the length
of their submission. We also strongly encourage parties to track the
organization set forth in the FNPRM in order to facilitate our internal
review process.
D. Further Information
66. Alternative formats (computer diskette, large print, audio
recording, and Braille) are available to persons with disabilities by
contacting Brian Millin at (202) 418-7426 voice, (202) 418-7365 TTY, or
bmillin@fcc.gov. This
[[Page 6238]]
Second FNPRM can also be downloaded in Microsoft Word and ASCII formats
at http://www.fcc.gov/wcb/universal_service/schoolsandlibs.html.
67. For further information, contact Kathy Tofigh at (202) 418-
1553, Karen Franklin at (202) 418-7706, or Jennifer Schneider at (202)
418-0425 in the Telecommunications Access Policy Division, Wireline
Competition Bureau.
IV. Ordering Clauses
68. Pursuant to the authority contained in sections 1, 4(i), 4(j),
201-205, 214, 254, and 403 of the Communications Act of 1934, as
amended, this Second Further Notice of Proposed Rulemaking is adopted.
69. The Commission's Consumer and Governmental Affairs Bureau,
Reference Information Center, shall send a copy of this Second Further
Notice of Proposed Rulemaking, including the Initial Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
List of Subjects in 47 CFR Part 54
Reporting and recordkeeping requirements, Telecommunications,
Telephone.
Federal Communications Commission.
Marlene Dortch,
Secretary.
[FR Doc. 04-2734 Filed 2-9-04; 8:45 am]
BILLING CODE 6712-01-U