January 25, 2000 Minutes

Eleven of the nineteen members were present, representing a quorum:

Bryant, Anne - by telephone

Eichler, Ed - by telephone

Gumper, Frank

Hess, Kevin

Jackson, Jimmy

Ouye, Kathleen

Parrino, Cheryl

Rehberger, Wayne - by telephone

Rosenblum, Lisa

Sanders, Dr. Jay

Talbot, Brian

Three members joined the meeting in progress:

Abramson, David

Gold, Heather

Marockie, Dr. Hank

Five members were absent:

Butler, Tony

Hogerty, Martha

Lineberry, Isiah

Thoms, Allan

Wheeler, Tom

Officers of the Corporation present:

Haga, Robert - Acting Secretary/Treasurer

Others present for the meeting:

Name

Company

Barash, Scott

USAC

Barrett, Andrew C.

The Barrett Group, Inc.

Bellucci, Vicky - by telephone

MCIWorldCom

Blackwell, Mel

USAC

Flannery, Irene

FCC

Harrison, Gina

NECA

Howard, Cathy

USAC

Moore, Kate

USAC

Ricker, John

NECA

Snegireff, Petre

PricewaterhouseCoopers

a1.

Approval of the Minutes. On a motion duly made and seconded, the Board approved the minutes, as distributed, of the quarterly meeting of Tuesday, October 26, 1999.

On a motion duly made and seconded, the Board unanimously agreed at 9:03 a.m. Eastern Time to go into Executive Session for the purpose of discussing USAC financial and corporate issues, and to discuss current procurement issues. On a motion duly made and seconded, the Board unanimously agreed at 9:32 a.m. Eastern Time to adjourn from Executive Session and reconvene in Open Session to report out the discussion and the action of the Board.

i13.

Corporate and Financial Issues. USAC has been notified informally by FCC staff that the FCC is considering categorizing the Universal Service Fund as "federal funds" for accounting and financial reporting purposes. The FCC and USAC staff are working together to determine the ramifications of such a change. USAC has communicated its need to the FCC for formal written direction from the FCC prior to making significant operational changes. Ms. Parrino will keep the Board members informed as developments warrant.

Contract and Request for Proposals (RFP) Review. Mr. Barash reported that the RFP process for programmatic support services for the Schools and Libraries and the Rural Health Care Programs is on schedule and going well. USAC anticipates receiving bids from several firms and has established an internal evaluation team to consider the proposals.

a2.

Annual Election of Officers, Officers' Terms, Election of Committee Chairs and Vice-Chairs, and Restructuring of the Executive Committee. Ms. Parrino summarized the resolutions as recommended by the Nominating Committee.

On a motion duly made and seconded, the Board unanimously (except as noted) adopted the following resolutions:

RESOLVED, That the USAC Board of Directors accepts the recommendations of the USAC Nominating Committee that: (1) in addition to the annual election of officers, all Committee chairs and vice- chairs shall also be elected annually; (2) the first election for Committee chairs and vice-chairs shall occur at the election of officers at the January 2001 Board of Directors meeting; (3) there shall be no term limits imposed on officer and Committee chair and vice-chair positions; and (4) there shall be no automatic succession of positions; and,

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendations of the USAC Nominating Committee to elect Mr. Frank Gumper as Chair of the Board of Directors; Dr. Henry Marockie as Vice-chair, Mr. Ed Eichler as Secretary, and Mr. Wayne Rehberger as Treasurer for the term of one year that shall begin at the conclusion of the January 2000 Board meeting and that shall conclude at the close of the January 2001 Board meeting; and,

RESOLVED FURTHER, That the USAC Board of Directors elects Ms. Cheryl L. Parrino as CEO of the Universal Service Administrative Company for the term of one year that shall begin at the conclusion of January 2000 Board meeting and that shall conclude at the close of the January 2001 Board meeting (Ms. Parrino abstained.); and,

RESOLVED FURTHER, That the USAC Board of Directors elects Mr. D. Scott Barash as Assistant Secretary and Mr. Robert Haga as Assistant Treasurer of USAC for the term of one year that shall begin at the conclusion of the January 2000 Board meeting and that shall conclude at the close of the January 2001 Board meeting; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Nominating Committee to restructure the Executive Committee, and that, effective at the conclusion of the January 2000 Board meeting, the Executive Committee of the USAC Board of Directors shall consist of the following nine members: the Chair of the High Cost and Low Income Committee, the Chair of the Rural Health Care Committee, the Chair of the Schools and Libraries Committee, the Chair of the USAC Board, the Vice-Chair of the USAC Board, the Secretary of the USAC Board, the Treasurer of the USAC Board, the most recent past Chair of the USAC Board, and the Chief Executive Officer of USAC; and,

RESOLVED FURTHER, That the USAC Board of Directors appoints to the Executive Committee, effective at the conclusion of the January 2000 Board meeting, the following members of the USAC Board of Directors: the Chair of the High Cost and Low Income Committee, the Chair of the Rural Health Care Committee, the Chair of the Schools and Libraries Committee, the Chair of the USAC Board, the Vice-Chair of the USAC Board, the Secretary of the USAC Board, the Treasurer of the USAC Board, the most recent past Chair of the USAC Board, and the Chief Executive Officer of USAC.

The Board expressed concern that nine members on the Executive Committee is more than is customary for such a committee and DIRECTED the members to monitor the meetings throughout the upcoming year for any problems due to such a large group and to recommend any changes in membership to the Board if the Committee feels such an action is warranted.

Ms. Parrino clarified for the Board that Committee Chairs and Vice-Chairs are elected by the full Board but at the recommendation of each respective Committee. In the past, the Board has not rejected any recommendations from the Committees for Committee Chairs and Vice-Chairs.

On behalf of the whole Board, Mr. Gumper thanked Ms. Rosenblum for her service as Chair on the Board. He announced that since he will be taking over the Chair of the Board position, he intends to step down as a member of the Schools and Libraries Committee. Ms. Rosenblum stated that the appointment of a new member to the Schools and Libraries Committee to replace Mr. Gumper would take place under the Miscellaneous Action Item of the meeting. Ms. Parrino informed the Board that Mr. Gumper represented service providers on the Schools and Libraries Committee.

a3.

Approval of an Uncollectible Write-off Policy. Ms. Parrino reported that the Executive Committee is recommending to the Board to adopt a policy establishing how to handle uncollectible contributions. USAC staff cannot and does not recommend writing off uncollectible amounts; only the FCC has the authority to waive or otherwise modify a carrier's contribution requirement.

On a motion duly made and seconded, the Board unanimously adopted the following resolution: RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to direct staff to establish an accounting reserve against uncollectible accounts receivable in conformity with generally accepted accounting principles and to direct staff to continue the current practice of stating accounts receivable balances from all companies regardless of collectibility in the accounts receivable aging analysis.

a4.

Approval of Reporting Requirements for Companies Involved in the Transfer and/or Sale of Assets. Mr. Haga explained that USAC has followed the policies set forth in the issue paper; staff is now requesting formal Board approval of the procedures. The Board DIRECTED staff to clearly state in the procedures that parties to a sale of assets may negotiate arrangements to handle the reporting of revenue with respect to those assets and that USAC would honor specific obligations when provided with documentation which obligates one party to report the revenues associated with the assets for Universal Service purposes.
On a motion duly made and seconded, the Board unanimously adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to direct staff to implement the foregoing Procedures for the Required Filing and Follow-up of Contribution Reports for Companies involved in the Transfer and/or Sale of Assets as presented, and directs staff to apply the stated procedures and provide follow-up on reporting companies as noted.

a5.

Modification of USAC Investment Strategy. Ms. Parrino informed the Board that the FCC has requested USAC to move its investments into federal government-issued securities. Board members questioned the authority of the FCC to make such a request in light of the fact that such a change could potentially decrease the returns on the investments. The following resolution was duly made and seconded, but no action was taken on the motion: Resolved, that the USAC Board of Directors accepts the recommendation of the Executive Committee to retain the existing USAC investment guidelines and adopt the investment strategy presented by the staff herein until such time as circumstances require or allow a change in this investment approach.

The Board discussed the actions staff had taken, consistent with current investment guidelines, and determined additional information should be provided to the Board and that the Executive Committee should take action soon to adopt or reject the revised investment strategy. On a motion duly made and seconded, the Board unanimously adopted the following resolution:

RESOLVED, That the USAC Board of Directors directs staff to retain the USAC investment guidelines that have been in place since January 3, 2000, until such time as the CEO is able to clarify with the FCC which entity has the proper authority to make changes to USAC's investment strategy, and directs the CEO to report the findings to the Executive Committee for further review.

The Board DIRECTED staff to produce a document detailing the pros and cons of the current strategy versus the strategy proposed by the FCC and to send a copy to each member.

a6.

Approval of a Statement of Ethical Conduct for Members of the USAC Board of Directors. Mr. Barash explained to the Board that the Executive Committee, upon review of the Statement as presented to them by the Nominating Committee at its recent quarterly meeting, noted that the document did not indicate to whom a Board member should report to if a conflict should occur or for advice on whether a known upcoming situation may constitute an ethical conflict. Therefore, the Executive Committee passed a resolution adding this information to the document. Mr. Barash distributed a copy of the revised document to the Board and indicated that the General Counsel of USAC was added as the contact person.

On a motion duly made and seconded, the Board unanimously adopted the following resolution:

RESOLVED, That the USAC Board of Directors accepts the recommendation made by the Nominating Committee and the Executive Committee to approve the proposed revised Statement of Ethical Conduct for Members of the USAC Board of Directors.

a7.

Approval of Annual 2000 and 2^nd Quarter 2000 USAC Common and Consolidated Budget. Ms. Parrino noted a change to Attachment C with respect to one of the explanations provided. Ms. Parrino also pointed out that two contingencies have been factored into the budget. First, $900,000 has been added to cover the estimated cost of re-coding the data of the High Cost forward-looking model-if USAC is indeed asked to do so by the FCC. Second, $3.8 million has been added for transition costs in the event that USAC selects a vendor other than the current vendor for the programmatic support services for the Schools and Libraries Program. No contingency has been factored in for possible transition costs if a new vendor is chosen for the programmatic support services for the Rural Health Care Program because staff believes that the expected cost savings in combining the administration of the two Programs will offset any transition costs. With the contingencies, the budget is 10.6 percent lower than the pre-merger budget; without the contingencies, it would be 21 percent below the pre-merger budget. Overall, the budget has decreased in comparison to budgeted 1999 expenses.

Ms. Parrino further explained that the increase in "Salaries and Benefits" is driven by three factors: (1) For the year 2000, the cost of USAC's benefits increased 23 percent due to an increase in rates by USAC's benefits administrator. Staff has been directed to review other providers in an effort to determine if reasonable benefits can be offered to the employees at a lower cost; (2) Additional positions in the USAC organization are necessary in order to provide quality service to the stakeholders and to run the new High Cost Model. Bringing more work in-house then reduces the costs of outside contracts; and (3) USAC is requesting an increase of up to 4.5 percent in salaries for all USAC employees with the company on or before October 1, 1999, in an effort to keep the wages inline with the local labor workforce. The 4.5 percent figure is based on comparing USAC salaries to other current salary surveys for the local labor workforce and the federal government's increase of 4.9 percent in salaries for the year 2000.

On a motion duly made and seconded, the Board unanimously adopted the following resolutions:

RESOLVED, That the USAC Board of Directors accepts the recommendation of the Executive Committee to approve a 2^nd Quarter 2000 USAC common budget of $834,900; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive Committee to approve a 2^nd Quarter 2000 USAC consolidated budget of $9,835,600; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive Committee to approve a 2000 annual USAC common budget of $2,913,900; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive Committee to approve a 2000 annual USAC consolidated budget of $41,221,700.

a8.

Approval of 2^nd Quarter 2000 Revenue Projections and Resolutions for the February 2000 FCC Filing. Mr. Haga reported that the revenue base has increased as expected.

On a motion duly made and seconded, the Board unanimously adopted the following resolution:

RESOLVED, that the USAC Board of Directors, having reviewed a summary of the current status of telecommunications service provider revenues for January through June 1999, authorizes staff to proceed with the required February 2, 2000, filing to the FCC on behalf of USAC. If the revenue estimate in the filing varies from the revenue estimate included in Board materials by an amount greater than $2.5 billion, the staff will seek the approval of the Board to file the revised revenue estimate.

a9.

Approval of the Outline for the Annual Report to the FCC and Congress. Mr. Blackwell informed the Board that the outline for the Annual Report has not changed since the last time it was presented to the Board at the quarterly October 1999 Board meeting. Staff has met with the FCC on several occasions to verify the information that the FCC expects to find in the final report and staff continues to do so in an effort to conform to FCC directives. He reminded the Board members that a draft version of the report has been sent to each member via email and welcomes their comments. He noted that in order to stay on schedule and have the report ready by March 31, he requests the comments by February 14. Board members suggested adding pictures of Universal Service in action, but only if the cost is not prohibitive.

On a motion duly made and seconded, the Board unanimously adopted the following resolutions:

RESOLVED, That the USAC Board of Directors approves the Outline for the Annual Report as reviewed; and

RESOLVED FURTHER, That the USAC Board of Directors delegates the final review and approval of the Annual Report to the Executive Committee and directs staff to provide each Board member with a copy of the final Annual Report.

Thirteen of the nineteen elected members were present, representing a quorum:

Bryant, Anne - by telephone

Eichler, Ed - by telephone

Gold, Heather

Gumper, Frank

Hess, Kevin

Jackson, Jimmy

Marockie, Dr. Hank

Ouye, Kathleen

Parrino, Cheryl

Rehberger, Wayne - by telephone

Rosenblum, Lisa

Sanders, Dr. Jay

Talbott, Brian

a10.

Miscellaneous.

• Election of a Board Member to the USAC Schools and Libraries Committee Due to the Resignation of Committee Member Mr. Frank Gumper. Ms. Ouye reported to the Board that during the aforementioned recess, the members of the Schools and Libraries Committee met to determine nominations for the position vacated by Mr. Gumper on that Committee. The Committee submitted to the Board the nomination of Ms. Lisa Rosenblum, who represents service providers.

  On a motion duly made and seconded, the Board unanimously adopted the following resolution:

  RESOLVED, That the USAC Board of Directors elects Ms. Lisa Rosenblum to the USAC Schools and Libraries Committee.

i15.

Rural Health Care Program Status Report. For information only. No discussion held.

i16.

Status of the Implementation of Program Changes. For information only. No discussion held.

i17.

Review of Annual 2000 and 2^nd Quarter 2000 Rural Health Care Programmatic Budget. For information only. No discussion held.

i18.

Review of 2^nd Quarter 2000 Rural Health Care Projections and Resolution on the February 2000 FCC Filing. For information only. No discussion held.

i19.

Miscellaneous. None.

i20.

Schools and Libraries Program Update. For information only. No discussion held.

i21.

Review of Annual 2000 and 2^nd Quarter 2000 Schools and Libraries Programmatic Budget. For information only. No discussion held.

i22.

Review of 2^nd Quarter 2000 Schools and Libraries Projections and Resolution on the February 2000 FCC Filing. For information only. No discussion held.

i23.

Miscellaneous. None.

i24.

High Cost Program Status Report. For information only. No discussion held.

i25.

Low Income Program Status Report. For information only. No discussion held.

i26.

Report on the Implementation of the New High Cost Program for Non-Rural Companies. For information only. No discussion held.

i27.

Review of Annual 2000 and 2^nd Quarter 2000 High Cost and Low Income Programmatic Budget. For information only. No discussion held.

i28.

Review of 2^nd Quarter 2000 High Cost and Low Income Projections and Resolution on the February 2000 FCC Filing. For information only. No discussion held.

i29.

Miscellaneous. None.