BNUMBER: B-278820
DATE: February 10, 1998
TITLE: [Letter], B-278820, February 10, 1998
**********************************************************************
B-278820
February 10, 1998
The Honorable Ted Stevens
United States Senate
Dear Senator Stevens:
This letter is in response to your request dated November 28, 1997,
asking us to review the Federal Communications Commission's
implementation of section 254(h) of the Communications Act of 1934, as
amended. 47 U.S.C. sec. 254(h). Subsection 254(h) provides the
authority for the Commission to authorize universal service support
benefits for eligible schools and libraries and rural health care
providers.
Your request concerns those provisions of the Commission's orders
implementing subsection 254(h) that led to the incorporation in
Delaware of two not-for-profit corporations. These corporations were
formed to administer certain functions of the universal service
programs for schools and libraries and rural health care providers.
The Chairman of the Commission selects or approves the board of
directors for these entities and the operating expenses of the
corporations are recovered from industry fees assessed to support
universal service. You asked whether the Commission has the legal
authority to establish such corporations. In addition, you asked us
to describe the federal laws (for example, the Federal Advisory
Committee Act), employment rules, and congressional oversight that
govern the operation of the corporations.
We sought the views of the Commission about these and other questions,
and by letter of January 5, 1998, the Commission provided its legal
opinion.
Question 1: Was the Commission authorized to establish the Schools
and Libraries Corporation and the Rural Health Care Corporation?
Answer: As explained more fully below, the Commission exceeded its
authority when it directed the National Exchange Carriers Association,
Inc. (NECA) to create the Schools and Libraries Corporation and the
Rural Health Care Corporation. The Government Corporation Control Act
specifies that "[a]n agency may establish or acquire a corporation to
act as an agency only by or under a law of the United States
specifically authorizing the action." 31 U.S.C. sec. 9102. These
entities act as the agents of the Commission and, therefore, could
only be created pursuant to specific statutory authority. Because the
Commission has not been provided such authority, creation of the two
corporations violated the Government Corporation Control Act.
Because the Commission has argued that it did not "establish or
acquire" the corporations, we provide some background about the
establishment of the corporations. More detail is contained in the
attached Appendix.
Establishment of the Corporations
Section 254, as added by the Telecommunications Act of 1996[1], among
other things, made the Commission's universal service mandate more
explicit and extended the reach of universal service support to
schools, libraries, and rural health care providers. The section
requires the Commission, acting on the recommendations of a
Federal-State Joint Board, to define universal service and develop
specific, predictable, and equitable support mechanisms. The
provision expands both the base of companies that contribute to the
universal service fund and the category of customers who benefit from
the universal service support programs.
Section 254 is silent on how the Commission is to administer the
universal service programs, including the programs for schools and
libraries and rural health care providers. In the Universal Service
Order released on May 8, 1997, the Commission, consistent with the
Joint Board's recommendation, determined that it would create a
Federal Advisory Committee to recommend a neutral, third-party
permanent administrator of the universal service programs. In the
interim, the Commission appointed the National Exchange Carrier
Association, Inc. (NECA) the temporary administrator, subject to
changes in NECA's governance.[2] NECA was established in 1983, at the
direction of the Commission, as an association of local exchange
carriers (LECs) to administer the interstate access tariff and revenue
distribution process.[3] Prior to that time, AT&T had acted as a
tariff filing agent for the entire industry and had also performed
most of the administrative functions in connection with the
settlements pooling arrangement.[4] Since NECA's creation, the
Commission has assigned it the responsibilities for administering the
existing universal service fund and other explicit support mechanisms.
On July 18, 1997, the Commission released NECA's Governance Order and
directed NECA to create an independently functioning not-for-profit
subsidiary to be designated the Universal Service Administrative
Company (USAC) that would temporarily administer the universal service
support program for high-cost areas and low-income consumers, as well
as perform billing and collection functions for all of the universal
service programs, including the programs for schools and libraries and
the rural health care providers.[5]
The Commission also directed NECA to create two unaffiliated,
not-for-profit corporations to be designated the Schools and Libraries
Corporation and the Rural Health Care Corporation. The Commission
concluded that such entities were critical to the successful
implementation of the schools and libraries and rural health care
programs. Moreover, to ensure continuity in and efficient
administration of these programs, the Commission concluded that the
corporations should continue to perform their designated functions
even after the date on which the permanent administrator is appointed.
Thus, the Commission removed these entities from the scope of the
functions that will be performed by the temporary and permanent
administrator.
NECA was directed to incorporate the corporations under the laws of
Delaware and to take such steps as are necessary under Delaware and
federal law to make the corporations independent of, and unaffiliated
with, NECA and USAC. NECA was further required to submit to the
Commission for approval the proposed articles of incorporation,
bylaws, and any documents necessary to incorporate the independent
corporations in order for the Commission to determine prior to their
establishment that the requirements of the Order had been satisfied.
This Order and the subsequent incorporation documents provide that the
corporations were organized by the Commission to carry out functions
connected with the provision of universal service support to schools,
libraries, and rural health care providers. These functions include
the administration of the application process for schools and
libraries and rural health care providers and the establishment of a
website on which applications will be posted. See 47 C.F.R. sec.
69.618(a), 69.619(a).
The certificate of incorporation of the Rural Health Care Corporation
specifies that the purpose of the corporation ". . . is defined in the
Federal Communications Commission's . . . rules at 47 C.F.R. sec. 69.618,
as it exists today and as it may be amended." The certificate of
incorporation further states that the corporation may engage in other
activities "so long as it is consistent with FCC Orders and Rules."[6]
In its letter to our Office of January 5, the Commission stated that
it did not envision these entities "operating outside the scope of the
activities set forth in the Commission's orders." Commission letter
at 9.
Under Commission rules the boards of directors of these entities are
comprised of members either selected or approved by the Chairman of
the Commission. The size and composition of the boards is set by the
Commission, as is the term of office. The Commission Chairman must
approve the removal of any director as well as a resolution to
dissolve the Corporation. The Chief Executive Officer (CEO) of these
corporations must be approved by the Chairman of the Commission.
Authority to enter into contracts must be in compliance with
Commission rules. All of these requirements have been included in the
corporations' by-laws.
Authority to Establish the Corporations
It is the Commission's view that it has authority to establish the
Schools and Libraries Corporation and the Rural Health Care
Corporation under sections 4(i) and 254 of the Communications Act of
1934, as amended. Section 4(i) of the Act provides that:
"The Commission may perform any and all acts, make such rules and
regulations, and issue such orders, not inconsistent with this
chapter, as may be necessary in the execution of its functions."
47 U.S.C. sec. 154(i).
Although we recognize the breadth of section 4(i),[7] the provision is
constrained by the later passage of the Government Corporation Control
Act. Under the Control Act:
"[a]n agency may establish or acquire a corporation to act as an
agency only by or under a law of the United States specifically
authorizing the action." 31 U.S.C. sec. 9102.
Section 4(i) does not provide the specific statutory authority needed
by the Commission to meet the requirements of the Control Act. Nor do
we find that section 254 provides this authority.[8] Indeed, the
Commission does not suggest that either of these provisions is broad
enough to overcome the requirement of the Control Act. Rather, in a
letter to our office dated January 5, 1998, the Commission contends
that the Control Act is not implicated because the Commission did not
"establish or acquire" the Schools and Libraries Corporation or the
Rural Health Care Corporation in this case. According to the
Commission, NECA established these corporations as a condition of
becoming the temporary administrator.
We disagree. The Control Act requirement that a Federal agency
possess specific authorization to "establish or acquire" a corporation
to act as an agency could not be avoided by directing another
organization to act as the incorporator. In our view, the Control
Act prohibits an agency from creating or causing creation of a
corporation to carry out government programs without explicit
statutory authorization.
Prior to enactment of the Government Corporation Control Act in 1945,
there was no requirement for specific authority to create
corporations. As the Supreme Court noted in Lebron v. National
Railroad Passenger Corporation, "[b]y the end of World War II,
Government-created and -controlled corporations had gotten out of
hand, in both their number and their lack of accountability." Lebron
v. National Railroad Passenger Corporation, 513 U.S. 374, 389 (1995).
Partly in response to this proliferation of corporations, a Joint
Committee of Congress conducted a 2-year study and issued a "Report on
Government Corporations" in 1944.[9] The report concluded that from
simple beginnings the government corporation concept had evolved into
a rationale for a maze of quasi-governmental corporations with little
accountability. The inevitable results of this growth, noted the
report, was the impairment of control by the Congress. Id. at 2. The
report went on to find that the corporations had little congressional
or executive branch supervision, few fiscal controls, and in many
instances were in competition with the private sector. Specifically,
the report stated: "There is no effective over-all control. Alone, or
in certain groups, these corporations are autonomous."[10] The
Committee called for over-all public control to be established.[11]
Legislative control of government corporations actually occurred in
two stages during 1945. In February of that year, legislation
required the General Accounting Office (GAO) to audit the financial
transactions of all government corporations.[12] In December, the
more comprehensive Government Corporation Control Act superseded these
audit requirements.[13]
The Act was intended to make the corporations accountable to the
Congress for their operations while allowing them the flexibility and
autonomy needed for their commercial activities. Under the Act, the
Bureau of the Budget (now Office of Management and Budget) controlled
the corporations' budgets, Treasury controlled financial transactions,
and GAO performed financial auditing.[14]
The Act also specified that without explicit congressional
authorization, no corporation should be acquired or created by "any
officer or agency of the Federal Government or by any Government
corporation for the purpose of acting as an agency or instrumentality
of the United States . . . ." sec. 304(a), 59 Stat. 602. In addition,
the Act required that all corporations then operating under state
charters were to be dissolved and reincorporated under federal law.
The House Report accompanying the legislation stated:
"The committee does not consider the practices of chartering
wholly owned Government corporations without prior authorization
by the Congress or under State charters to be desirable. It
believes that all such corporations should be authorized and
chartered under Federal statute. The bill provides that in the
future all corporations which are to be established for the
purpose of acting as agencies or instrumentalities of the United
States must be established by act of Congress or pursuant to an
act of Congress specifically authorizing such action." H.R. Rep.
No. 79-856, at 11 (1945).
The Congress enacted legislation whose applicability was to be
encompassing. The requirement for specific legislative foundation for
corporations to act as agents of the United States was not to be
thwarted by having another party act as the incorporator. In fact,
the identity of the incorporator was not the determinant of the
statue's applicability; the act expressly prohibits the "acquisition"
of corporations to act as instrumentalities of the United States. As
the Supreme Court noted in Lebron, the purpose for providing that
government corporations could not be established (or acquired)
without specific legislation ". . . was evidently intended to restrict
the creation of all Government-controlled policy-implementing
corporations, and not just some of them." Id. at 396. Thus, if an
entity was to be established for the purpose of carrying out
government functions under the control of an agency, legislation would
be necessary. In other words, an agency on its own could not create
or cause to be created a "captive corporation" to carry out government
functions and designate such an entity as "private."
As discussed above and detailed in the attached Appendix, the Schools
and Libraries Corporation and the Rural Health Care Corporation were
clearly created to carry out governmental functions in connection with
the Commission's responsibilities under section 254. We note that
even the corporations, themselves, do not deny that they were
established by the Commission. For example, the Rural Health Care
Corporation, in its Request for Proposals for Program Administration
Services defined itself as:
". . . a not-for-profit organization created by the Federal
Communications Commission (FCC) to administer funds allocated to
rural health care providers to aid in improving the telecommunication
infrastructure at rates reasonable and acceptable to urban health
care providers." (emphasis added).
NECA simply acted as the incorporator for the convenience of the
Commission. There is no nexus between NECA's role as temporary
administrator and the creation of these corporations. By the
Commission's own rules, these entities were removed from the mandates
of both the temporary and permanent administrator. Under the
circumstances, we conclude that the Commission violated the Government
Corporation Control Act by directing the establishment of the Schools
and Libraries Corporation and the Rural Health Care Corporation to act
as its agents in carrying out functions assigned by statute to the
Commission.
Question 2: What federal laws (for example the Federal Advisory
Committee Act), employment rules, and congressional oversight apply to
the operation of the corporations?
Answer 2: The Commission's Order required that private corporations
be established. As such, they are not subject to statutes that impose
obligations on federal entities and federal employees in the areas of
employment practices, procurement, lobbying and political activity,
ethics, and disclosure of information to the public. On the other
hand, each of the corporations is subject to federal statutes
applicable to private corporations, unless outside the coverage of the
statute. For example, we note that the Federal Advisory Committee Act
(FACA) would not apply to these corporations since these entities are
primarily operational in nature.[15]
Finally, as established by the Commission, Congress has no direct
oversight over the corporations. The corporations do not provide
budget information directly to Congress, but rather are accountable to
the Commission, which in turn, is accountable to the Congress.[16]
We trust this is responsive to your inquiry.
Sincerely yours,
Robert P. Murphy
General Counsel
APPENDIX
Universal Service
Historically, universal service has meant access to basic telephone
service, sometimes called "plain old telephone service" or "POTS." As
evidence of the importance of providing universal service, the
Commission points to section 1 of the Communications Act of 1934,
which provides that the purpose of the Act is to:
". . . make available, so far as possible, to all the people of
the United States . . . a rapid, efficient, Nation-wide, and
world-wide wire and radio communication service with adequate
facilities and reasonable charges. . .." 47 U.S.C. sec. 151.
Universal service has been achieved through a combination of implicit
and explicit subsidies at the federal and state levels. Implicit
subsidies are provided through elevated interstate and intrastate
access charges, elevated prices for business services, average rates
over broad geographic areas, and elevated prices for advanced
services, such as Caller ID and call forwarding.[1] In addition to
implicit subsidies, the Commission and some states also provide
explicit support mechanisms directed at increasing network
subscribership by reducing rates in high-cost areas and at making
basic telephone services available for low-cost consumers.[2]
Section 254, as added by the Telecommunications Act of 1996[3], for
the first time provided explicit statutory support for the
Commission's responsibility to assure universal service. Universal
service is defined as:
". . . an evolving level of telecommunications services that the
Commission shall establish periodically . . . , taking into
account advances in telecommunications and information
technologies and services." 47 U.S.C. sec. 254(c)(1).
The Joint Board in recommending and the Commission in defining the
services that are to be supported by universal support mechanisms are
to consider the extent to which such telecommunications services (a)
are essential to education, public health, or public safety; (b) have,
through the operation of market choices, been subscribed to by a
substantial majority of residential customers; (c) are being deployed
in public telecommunications networks by telecommunications carriers;
and (d) are consistent with the public interest, convenience, and
necessity. 47 U.S.C. sec. 254(c)(1). Under the Universal Service Order,
the Commission defined the "core" or "designated" services that will
be supported by universal service support mechanisms as: single-party
service; voice grade access to the public switched network; Dual Tone
Multifrequency signaling or its functional equivalent; access to
emergency services; access to operator services; access to
interexchange service; access to directory assistance; and toll
limitation for qualifying low-income consumers.
In addition to the services included in the general definition,
section 254 authorizes the Commission to designate additional services
for schools, libraries, and health care providers for the purposes of
subsection 254(h). Subsection 254(h) has two main parts. Subsection
254(h)(1) provides that any public or nonprofit health care provider
that serves rural areas is entitled to receive upon a bona fide
request "telecommunications services which are necessary for the
provision of health care services" at rates comparable to those
charged in urban areas of the same state. 47 U.S.C. sec. 254(h)(1)(A).
Schools and libraries, on the other hand, are entitled to receive upon
a bona fide request services "at rates less than the amounts charged
for similar services to other parties." 47 U.S.C. sec. 254(h)(1)(B).
Subsection 254(h)(2) directs the Commission to establish competitively
neutral rules to enhance, to the extent technically feasible and
economically reasonable, access to advanced telecommunications and
information services for all public and nonprofit elementary and
secondary school classrooms, health care providers, and libraries. In
addition, the rules are to define the circumstances under which a
telecommunications carrier may be required to connect its network to
qualified elementary and secondary schools, libraries, and health care
providers. 47 U.S.C. sec. 254(h)(2).
The legislative history of the provision sheds some light on the
intended scope of the programs. The Conference Report provides that:
"For example, the Commission could determine that
telecommunications and information services that constitute
universal service for classrooms and libraries shall include
dedicated data links and the ability to obtain access to
educational materials, research information, statistics,
information on Government services, reports developed by Federal,
State, and local governments, and information services which can
be carried over the Internet." S. Rep. No. 104-230, at 133
(1996); H.R. Rep. No. 104-458, at 133 (1996).
On May 8, 1997, the Commission released its Universal Service Order
that, among other things, outlined a plan to implement subsection
254(h). With respect to schools and libraries, the plan provided
discounts ranging from 20 to 90 percent on all commercially available
telecommunications services, Internet access, and internal
connections. The level of discounts would be based on a school's or
library's level of economic disadvantage and its location in an urban
or rural area. The Commission concluded that there should be
established an annual cap of $2.25 billion on universal service
expenditures for eligible schools and libraries.
With respect to public or nonprofit rural health care providers, the
Commission's Order provided that these entities would be eligible to
receive universal service support not to exceed an annual cap of $400
million. A health care provider may obtain telecommunications
services at rates comparable to those paid for similar services in the
nearest urban area with more than 50,000 residents, within the state
in which the rural health provider is located. Rural health care
providers will receive support for both distance-based charges and a
toll-free connection to an Internet service provider. Each health
care provider that lacks toll-free access to an Internet service
provider may also receive the lesser of 30 hours of Internet access at
local calling rates per month or $180 per month in toll charge credits
for toll charges imposed for connecting to the Internet.
Administration
Section 254 is silent on how the Commission is to administer the
universal service programs, including the programs noted above for
schools and libraries and for rural health care providers. In its
March 1996 Notice of Proposed Rulemaking and Order Establishing the
Federal-State Joint Board on Universal Service, the Commission sought
comment on the best approach to administer the universal service
mechanisms fairly. The Commission noted that the fund could be
administered by a non-governmental entity or the funds could be
collected and disbursed through state public utility commissions.[4]
Consistent with the Joint Boards' recommendations that were released
in November 1996,[5] and the record in the proceeding, the Commission
decided to create a Federal Advisory Committee (Committee), pursuant
to the Federal Advisory Committee Act (FACA), 5 U.S.C. App. 2, sec. sec.
4(a) and 3(2)(c), whose sole responsibility would be to recommend to
the Commission through a competitive process a neutral, third-party
administrator to administer the universal service program. The
Commission also noted that because the needs of educational
institutions are complex and substantially different from the needs of
other entities eligible for universal support, it would require the
administrator, after receiving recommendations submitted by the
Department of Education, to select a subcontractor to manage
exclusively the application process for eligible schools and
libraries. Additionally, the Commission adopted the Joint Board's
recommendation that the National Exchange Carrier Association, Inc.
(NECA), be appointed the temporary administrator, subject to changes
in NECA's governance that would make it more representative of the
telecommunications industry as a whole.
NECA was established in 1983, at the direction of the Commission, as
an association of local exchange carriers (LECs) to administer the
interstate access tariff and revenue distribution process.[6] Prior
to that time, AT&T had acted as a tariff filing agent for the entire
industry and had also performed most of the administrative functions
in connection with the settlements pooling arrangement.[7] Since
NECA's creation, the Commission has assigned it the responsibilities
for administering the existing high-cost and low income support
mechanisms.
The Joint Board noted that NECA's current membership of incumbent
local exchange carriers, its board of directors composed primarily of
representatives of incumbent local exchange carriers, and its advocacy
positions in several Commission proceedings may appear to non-LEC
carriers as evidence of NECA's bias toward ILECs. Accordingly, the
Board recommended that prior to appointing NECA the temporary
administrator, the Commission should permit NECA to add significant,
meaningful representation for non-incumbent LEC carrier interests to
the NECA's Board of Directors. The Joint Board also recommended that
NECA be eligible to compete in the process for selecting a permanent
administrator if changes to NECA's membership and governance rendered
NECA a neutral, third party.
The Commission conducted a separate proceeding to deal with the issue
of NECA's governance. By a letter dated October 18, 1996, NECA
requested that the Commission modify the size and composition of
NECA's Board of Director by adding six directors from groups that
would have a substantial stake in the new universal service
programs.[8] On January 10, 1997, the Commission issued a Notice of
Proposed Rulemaking and Notice of Inquiry addressing NECA's proposal
and the Joint Board's recommendation that NECA be allowed to alter its
governance structure. The NPRM tentatively concluded that in order for
NECA to be eligible to serve as temporary administrator, NECA's Board
must become more representative of the telecommunication industry as a
whole.[9]
Also, on January 10, 1997, NECA requested that the Commission consider
a revised proposal based on NECA's finding that it might not be
possible to develop a satisfactory governance proposal within the
context of a single administrative organization. Under NECA's January
proposal, NECA recommended establishing a separate subsidiary to
administer the universal support programs. As envisioned by NECA,
this wholly owned subsidiary, designated as the Universal Service
Administrative Company, would have a representative board of directors
based on the Commission's recommendation and would include some
representation from the current NECA Board.[10]
In June, subsequent to the Commission's Universal Service Order, NECA
filed a discussion paper with the Commission that highlighted the
advantages of single over multiple subsidiary approach. NECA proposed
the creation of board committees that would have specific program
responsibilities, including a committee for the high cost and low
income program, a committee for the schools and libraries program, and
a committee for the rural health care program. As proposed by NECA,
these committees would have final decision-making authority with
respect to defined aspects of program administration.[11]
On July 18, 1997, the Commission released its NECA's Governance Order
that created a three-company structure for administration of new
universal service programs. Under this Order, the Commission directed
NECA to create an independently functioning not-for-profit subsidiary
to be designated the Universal Service Administrative Company (USAC)
that would temporarily administer the universal service support
program for high-cost areas and low-income consumers, as well as
perform billing and collection functions for all of the universal
service programs, including the programs for schools and libraries and
the rural health care providers.[12] The Commission also
reconsidered, on its own motion, its decision in the Universal Service
Order that a subcontractor manage the application process for schools
and libraries.[13] Instead, the Commission directed NECA to create
two unaffiliated, not-for-profit corporations to be designated the
Schools and Libraries Corporation and Rural Health Care Corporation to
administer portions of the schools and libraries and rural health care
universal service programs (collectively referred to as the
corporations).[14] The Commission also reconsidered the scope of
functions that will be performed by the temporary administrator and
the permanent administrator, by concluding that the corporations
should continue to perform their designated functions even after the
date on which the permanent administrator is appointed.[15]
The Commission argued that the creation of the two non-profit
corporations was critical to the successful implementation of the
schools and libraries and rural health care support mechanisms. This
was because the programs were new and involved potentially large
number of participants and beneficiaries and could require special
expertise.
Establishment of the Corporations
Under the NECA Governance Order, the Commission outlined the functions
of the corporations and designated the size and composition of their
respective boards. The Commission directed that the Board of
Directors of the Schools and Libraries Corporation will consist of
seven members, including three schools representatives, one libraries
representative, one service provider representative, one independent
director, and the CEO of the corporation. Similarly, the Commission
directed that the Board of Directors of the Rural Health Care
Corporation will consist of five members, including two rural health
care representatives, one service provider representative, one
independent director, and a CEO.
The Chairman of the Commission selects or approves all of the members
of the board of directors for the universal service corporations. The
Chairman of the Commission will select the independent board member
for the Schools and Libraries Corporation. In addition, under the
Commission's Order, the three directors on the USAC Board of Directors
representing schools and the one director representing libraries will
be appointed to the Schools and Libraries Board of Directors. The
USAC Board will also select the service provider from its board of
directors to serve on the Schools and Libraries Board of Directors.
The six board members of the Schools and Libraries Corporation will
submit a CEO candidate to the Chairman for approval. The CEO will
also sit on the board of directors.
A similar process was mandated for the selection of the board of
directors of the Rural Health Care Corporation. The Chairman of the
Commission will select, based on nominations, one of the two board
member to represent rural health care providers. Additionally, the
Chairman of the Commission will select an independent board member.
The USAC Board of Directors is to select from its members the other
director representing rural health care providers and a service
provider. These four board member will submit a CEO candidate to the
Chairman of the Commission for approval. The chosen CEO will serve on
the board of directors.
Not only does the Commission direct the USAC Board to appoint certain
of its board members to serve on the independent corporations' boards
of directors but these USAC Board members are, in the first instance,
also selected by the Chairman of the Commission. Under the NECA
Governance Order, the Commission directed that USAC's Board will be
comprised of: three directors representing ILECs; two directors
representing long distance carriers (IXCs), one director representing
commercial mobile radio service providers, which includes cellular,
Personal Communications Services, paging, and Specialized Mobile Radio
companies; one director representing Competitive Local Exchange
Carriers; one director representing cable operators; one director
representing information service providers; three directors
representing eligible schools; one director representing eligible
libraries; one director representing eligible rural health care
providers; one director representing low-income consumers; one
director representing state telecommunications regulators; and one
director representing state consumer advocates.
Members of the industry or non-industry groups that will be
represented on the USAC Board submit nominees selected by consensus to
the Chairman of the Commission. The Chairman will review the
nominations and select the members of the USAC Board. If a group
fails to reach consensus and submits more than one nominee, the
Chairman will select the individual to represent the group.
Similarly, if no nomination is submitted, the Chairman will select the
individual from the appropriate industry or non-industry group.
1. Pub. L. 104-104, 110 Stat. 56 (1996).
2. Federal-State Joint Board on Universal Service, First Report and
Order, CC Docket No. 96-45, FCC 97-157 (rel. May 8, 1996) (Universal
Service Order).
3. MTS and WATS Market Structure, Third Report and Order, CC Docket
No. 78-72, Phase I, FCC 82-579 (rel. February 28, 1983).
4. With the imminent breakup of AT&T, the Commission believed that
AT&T could no longer perform this function in the post-divestiture
environment.
5. Changes to the Board of Directors of the National Exchange Carrier
Association, Inc. and Federal-State Joint Board on Universal Service,
Report and Order and Second Order on Reconsideration, CC Docket No.
97-21 and No. 96-45, FCC 97-253 (rel. July 18, 1997)(NECA Governance
Order).
6. A similar provision is contained in the Schools and Libraries
Certificate of Incorporation. See 47 C.F.R. sec. 69.619(a).
7. Courts have characterized this section as analogous to Article 1,
Section 8, Clause 18 of the Constitution, which authorizes Congress to
make all laws that "shall be necessary and proper" for carrying out
its enumerated powers and "all other powers" vested in the federal
government. Mobile Communications Corp. of America v. FCC, 77 F.3d
1399, 1404 (D.C. Cir. 1996), cert. denied, 117 S. Ct. 81 (1996); New
England Tel. & Tel. v. FCC, 826 F.2d 1101, 1107-08 (D.C. Cir. 1987);
North American Telecommunications Ass'n v. FCC, 772 F.2d 1282, 1292
(7th Cir. 1985); see also United States v. Southwestern Cable Co.,
392 U.S. 157, 181 (1968).
8. The Telecommunications Act of 1996 did provide the Commission with
specific authority "to create or designate" one or more impartial
entities to administer telecommunications numbering and to make such
numbers available on an equitable basis. 47 U.S.C. sec. 251(e)(1). It
also established a body corporate to be known as the
Telecommunications Development Fund. This fund provides grants to
small businesses to enhance competition in the telecommunications
industry, among other things. The provision establishing the fund
specifies the composition of the board of directors, as well as its
meetings and functions. 47 U.S.C. sec. 614. However, with respect to
the provision of universal service, Congress provided no authority to
establish such entities.
9. U.S. Congress, Joint Committee on Reduction of Nonessential Federal
Expenditures, Report on Government Corporations, Senate Doc. 227, 78th
Cong., 2d Sess. (Washington: U.S. Govt. Print. Off., 1944).
10. Id. at p. 27.
11. For a complete history of the Control Act, see, Managing the
Public's Business: Federal Government Corporations prepared for the
Senate Committee on Governmental Affairs by the Congressional Research
Service by Ronald C. Moe, S. Prt. 104-18 (April 1995).
12. Public Law 4, sec. 5, 59 Stat. 5 (1945).
13. In 1982, Pub.L. 97-258 codified the 1945 Act's provisions. See 31
U.S.C. sec. 9101-9110.
14. Primary auditing responsibilities were shifted in 1990 (Pub.L.
101-576) from GAO to the individual corporate Inspectors General
appointed under the Inspector General Act of 1978.
15. The Federal Advisory Committee Act (FACA) was enacted to control
the establishment of advisory committees to the federal government and
to allow the public to monitor their existence, activities and costs.
FACA's legislative history, relevant court cases, and General Services
Administration regulations suggest that coverage is limited to those
committees that provide advice and are not operational in nature. See,
H.R. Rep. No. 92-1017, at 4 (1972); S. Rep. No. 92-1098, at 8 (1972);
Judicial Watch, Inc. v. Clinton, 76 F.3d 1232 (D.C. Cir. 1996); and 41
C.F.R. sec. 101-6.10004(g).
16. A Memorandum of Understanding between the Department of Treasury,
the Commission, and NECA, dated April 1997, provides the concepts and
guidelines for reporting cash transactions and accrual-based balances
of the Universal Service Fund to meet the fiscal needs of the U.S.
Treasury. The Congressional Budget Office and the Office of
Management and Budget have interpreted the language of the
Telecommunications Act of 1996 to mean that payments into the
Universal Service Fund should be counted as federal revenues and
payments from the fund as federal outlays. This is because the
transfers of income between various classes of telephone users would
not occur but for the exercise of the sovereign power of the federal
government. Furthermore, portions of the Universal Service Fund, most
notably its Lifeline and Linkup Programs, have already been included
in the federal budget. "Federal Subsidies of Advanced
Telecommunications for Schools, Libraries, and Health Care Providers"
prepared by the Congressional Budget Office (January 1998).
1. FCC has defined "implicit subsidies" to mean that a single company
is expected to obtain revenues from sources at levels above "costs"
(i.e., above competitive prices levels), and to price other services
allegedly below costs. Such intra-company subsidies are typically
regulated by states. On the federal level, the primary implicit
subsidies are the geographic averaging of interstate long distance
rates and interstate access charges. In section 254(g) of the
Communications Act, as added by the Telecommunications Act of 1996, 47
U.S.C. sec. 254(g), Congress expressly directed that the geographic
averaging of interstate long distance rates continue. See
Federal-State Joint Board on Universal Service, First Report and
Order, CC Docket No. 96-45, FCC 97-157 (rel. May 8, 1996) (Universal
Service Order).
2."Telephone Subscribership in the United States," a 1998 report by
the FCC's Common Carrier Bureau that was based on Census Bureau
figures for November 1997 found that almost 94% of households have
telephone services. However, the rates vary based on income, age,
household size, race, geographic location, and other factors. See also
Common Carrier Bureau, FCC, Preparation for Addressing Universal
Service Issues: A Review of Current Interstate Support Mechanisms
(Feb. 23, 1996).
3. Pub. L. 104-104, 110 Stat. 56 (1996).
4. Federal-State Joint Board on Universal Service, Notice of Proposed
Rulemaking and Order Establishing a Joint Board, CC Docket No. 96-45,
FCC 96-93 (rel. Mar. 8, 1996) (Universal Service NPRM).
5. Federal-State Joint Board on Universal Service, Recommended
Decision, CC Docket No. 96-45, FCC 96J-3 (rel. Nov. 8, 1996)
(Recommended Decision).
6. MTS and WATS Market Structure, Third Report and Order, CC Docket
No. 78-72, Phase I, FCC 82-579 (rel. February 28, 1983).
7. However, with the imminent breakup of AT&T, the Commission believed
that AT&T could no longer perform this function in the
post-divestiture environment.
8. Letter from Bruce Baldwin, NECA, to Reed Hundt, Chairman, FCC,
October 18, 1996.
9. Changes to the Board of Directors of the National Exchange Carrier
Association, Inc., Notice of Proposed Rulemaking and Notice of
Inquiry, CC Docket No. 97-21, FCC 97-2 (rel. Jan. 10, 1997), errata,
mimeo 71784, CC Docket No. 97-21 (rel. Jan. 15, 1997) (NECA NPRM and
NOI).
10. Letter from Bruce Baldwin, NECA, to Reed Hundt, Chairman, FCC,
January 10, 1997.
11. Letter from Robert Haga to William F. Caton, Acting Secretary,
FCC, June 23, 1997, recording an ex parte meeting between NECA
personnel and Commissioner Quello and Commission staff.
12. The Commission agreed that expanding NECA's board would not assure
neutrality. The Commission noted the concern expressed by commenters
that NECA may be precluded from confining authority of newly added
non-ILEC directors to matters relating solely to the administration of
universal service support programs. Alternatively, if non-ILEC
directors were allowed to participate in ILEC matters, there might be
an issue of the duty owed by non-ILEC and non-carrier directors to
NECA's membership on LEC issues unrelated to universal service.
13. The Commission stated that the creation of private corporations ".
. . will provide for greater accountability and more efficient
administration of the schools and libraries and rural health care
programs than would the approach adopted earlier because a
subcontractor, unlike the Corporations, would not be directly
accountable to the Commission." (emphasis added).
14. The Commission stated that it was unpersuaded by NECA's argument
that a single structure would be more efficient, avoid duplication of
functions, or produce greater cost savings.
15. Changes to the Board of Directors of the National Exchange Carrier
Association, Inc., and Federal-State Joint Board on Universal Service,
Report and Order and Second Order on Reconsideration, CC Docket No.
97-21 and No. 96-45, FCC 97-253 (rel. July 18, 1997)(NECA Governance
Order).