39348 Prepared by the North Dakota Legislative Council staff for the Information Technology Committee September 2002

FEDERAL FUND

This memorandum provides information regarding Ÿ Interstate access support - This component the federal universal service fund, including background provides assistance to offset interstate access information on the establishment of the federal universal charges for price cap companies. service fund, information on federal universal service fund programs, and information on federal universal Low-Income Program service fund contributions and disbursements. The low-income program assists eligible low-income individuals with the establishing and maintaining of tele- BACKGROUND INFORMATION communications services by discounting services The Federal Communications Commission (FCC), provided by local telephone companies. The compo- under direction from the United States Congress, estab- nents of the low-income program include: lished a federal universal service fund to ensure that all Ÿ Lifeline - This component reimburses telephone people in the United States have access to fast, efficient, companies for discounting low-income individu- nationwide communications services at reasonable als’ monthly phone bills. With this component, charges. Prior to the Telecommunications Act of 1996, individuals are eligible to receive discounts on the federal universal service fund was a mechanism by services such as dual tone multifrequency, which interstate long-distance telephone carriers were single-party service, access to emergency serv- assessed fees to subsidize telephone service to low- ices, access to operator services, access to income households and high-cost areas. The Telecom- long-distance service, and access to directory munications Act of 1996 expanded the definition of assistance. The discounts range from $5.25 to universal service to include rural health care providers $11.35 per month depending on matching avail- and eligible schools and libraries. able from each of the states. Ÿ Link Up - This component reimburses local FEDERAL UNIVERSAL service providers for providing discounted connection charges to eligible low-income indi- SERVICE FUND PROGRAMS viduals. The individuals qualifying for the compo- The Universal Service Administrative Company nent are eligible to save up to 50 percent on (USAC) is a private, not-for-profit corporation that is installation fees, not to exceed $30. The responsible for administering the federal universal program also includes a plan to encourage local service fund and related programs under regulations telephone companies to offer low-income tele- promulgated by the FCC. The federal universal service phone subscribers a deferred payment schedule fund programs include the: for installation charges. Ÿ High-cost program. Ÿ Toll limitation service - This component compen- Ÿ Low-income program. sates telephone companies for offering no-cost Ÿ Rural health care program. toll limitation service to low-income individuals. Ÿ Schools and libraries program. The telephone companies are required to provide at least one type of toll limitation service, either High-Cost Program toll blocking, which prevents the placement of The high-cost program provides support to telecom- any long-distance calls, or toll control, which munications service providers that serve residents in limits the amount of long-distance calls to a areas of the United States that are more costly to serve. preset amount selected by the individual. The program is intended to ensure that all individuals, The low-income program has been expanded by the including those in rural, isolated, and high-cost areas, FCC to include additional discounts for low-income indi- have access to affordable telecommunications services. viduals on federally recognized tribal lands, including The components of the high-cost program include: Indian reservations and Alaskan Native lands. Ÿ High-cost loop support - This component The qualifications for participating in the low-income provides support for the “last mile” of connection program vary by state. States that administer their own for rural companies in service areas where the low-income programs have their own eligibility require- cost to provide the service exceeds 115 percent ments. In states that rely solely on the federal low- of the national average cost per line. income programs, an individual must participate in one Ÿ Long-term support - This component helps to of the following programs in order to qualify for support: offset interstate access charges for rate-of- , food stamps, Supplemental Security Income, return regulated carriers. federal public housing assistance, or low-income home Ÿ Local switching support - This component energy assistance program. provides assistance to telecommunications providers to reduce the fixed switching costs for companies serving fewer than 50,000 lines. 39348 2 September 2002

Rural Health Care Program demonstrates the relationship between the information The rural health care program provides support to technology to be supported and the curriculum or library telecommunications companies who provide reduced objectives. The school or library issues a request for rates to rural health care providers for telecommunica- proposals for a contract for selected services, and after tions services related to the use of telemedicine and the school or library selects a vendor, the services may telehealth. The goal of the program is to ensure that be ordered. Using funds from the federal universal health care providers serving rural communities pay no service fund, the vendor provides the services to the more than urban health care providers for telecommuni- school or library at discounted prices. cations services necessary for the provision of health care. FEDERAL UNIVERSAL SERVICE FUND In order to participate in the program, rural health CONTRIBUTIONS AND DISBURSEMENTS care providers such as higher educational institutions, All companies that provide telecommunications serv- community health centers, local health departments or ices between states, including long-distance telephone agencies, not-for-profit hospitals, and rural health clinics companies, local telephone companies, wireless tele- submit a form requesting telecommunications services phone companies, paging companies, and pay phone to the USAC. The USAC posts the form on its web site providers, are required to provide contributions to the to seek companies to provide the requested services. federal universal service fund. The amount of contribu- The rural health care provider selects a telecommunica- tions is based on a specific percentage or contribution tions company from the responses, and the company factor of interstate and international revenues. The provides the telecommunications services to the rural contribution factor is adjusted four times each year to health care provider at discounted prices by using funds properly account for changes in the demand for from the federal universal service fund. The rural health universal service funding, programming changes care provider may receive discounts on telecommunica- enacted by the FCC, or other necessary adjustments. tions services such as monthly telecommunications Information regarding federal universal service fund charges, installation charges, and long-distance Internet contributions by states is not available; however, the connection charges. FCC reports that rural states typically receive more disbursements from the fund than they contribute to the Schools and Libraries Program fund. The schools and libraries program, also known as All telecommunications companies providing eligible the e-rate program, provides support to telecommunica- universal service fund services may receive disburse- tions companies who make telecommunications afford- ments from the federal universal service fund. The able for schools and libraries in the United States. federal universal service fund disbursements for Generally, any school that meets the Elementary and calendar year 2001 totaled $4.658 billion, including Secondary Education Act of 1965 definition of schools $2.602 billion for the high-cost program, $584 million for and any library that receives assistance from a state’s the low-income program, $8 million for the rural health library administrative agency under the Library Services care program, and $1.464 billion for the schools and and Technology Act is eligible to participate in the libraries program. The state of North Dakota received program. federal universal service funding totaling $30,716,000, of Under the program, schools and libraries receive which $27,732,000 was for the high-cost program, discounts on telephone services, Internet access, and $1,389,000 was for the low-income program, $341,000 internal connections within school and library buildings. was for the rural health care program, and $1,254,000 The discounts range from 20 percent to 90 percent, was for the schools and libraries program. Information depending on the household income level of students in regarding federal universal service fund disbursements the community and whether or not the school or library is by state for the year 2001 is attached as an appendix. located in an urban or rural area. In order to participate in the program, schools and ATTACH:1 libraries must develop an approved technology plan that