Board of Directors Quarterly Minutes
October 24, 2000

Thirteen of the nineteen members (there is one vacancy) were present representing a quorum:

Abramson, David

Jackson, Jimmy

Bryant, Anne

Ouye, Kathleen G.

Eichler, Edwin H.

Parrino, Cheryl

Gold, Heather

Rosenblum, Lisa

Gumper, Frank

Sanders, Dr. Jay

Hess, Kevin

Wheeler, Tom

Hogerty, Martha

Two members joined the meeting in progress:

Butler, Tony - by telephone

Lineberry, Isiah - by telephone

Three members were absent:

Marockie, Hank

Thoms, Allan

Talbott, Brian

Officers of the Corporation present:

Barash, D. Scott

Assistant Secretary

Haga, Robert

Assistant Treasurer

Others present for the meeting:

Name

Company

Beaver, Tracy

USAC

Blackwell, Mel

USAC

Carroll, Kristy

USAC

Flannery, Irene

USAC

Howard, Cathy

USAC

Moore, Kate

USAC

Ricker, John

NECA

Sandy, Colin

NECA

a1.

Approval of the Minutes. On a motion duly made and seconded, the Board approved the minutes, as distributed, of the USAC Board of Directors' meeting of Tuesday, July 18, 2000.

a2.

Reports from the Committee Chairs. Each of the Committee Chairs briefly reported on the activity from the October quarterly Committee meetings: Ms. Gold - High Cost & Low Income Committee; Dr. Sanders - Rural Health Care Committee; Ms. Ouye - Schools & Libraries Committee; and Mr. Gumper - Executive Committee.

a3.

Revision of the Guidelines for Temporary Investments of USAC Funds to Update the Membership, Voting, and Name of the Temporary Investments Committee. Mr. Haga explained that staff is proposing changes to USAC's Guidelines for Temporary Investments of USAC Funds to clearly establish membership and voting privileges of the Committee. There has also been some confusion about the nature of the Committee due to the word "temporary" in the name of the Committee; therefore, staff has proposed changing the name of the Committee to the USAC Investments Committee. The Executive Committee approved the resolution at its October 19, 2000, meeting.

Mr. Haga noted two corrections to the suggested changes to the Guidelines before the Committee: (1) page 5 of 7, under "Bank Securities," second bullet, the word "deposit" in the phrase "Any certificate of deposit." should not be a strikeout; and (2) page 6 of 7, eighth bullet, the acronym "TIC" should read "the Investments Committee." The Board made one more revision to the Guidelines before voting on the resolution by striking the words "any combination of" from page 3 of 7, second line.

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

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to adopt the revised Guidelines for Temporary Investments of USAC Funds and further directs the Treasurer and Assistant Treasurer to use the revised Guidelines in managing the funds of the Corporation.

a4.

Biennial Review and Approval of Employee Ethical Standards. Ms. Parrino stated that since the inception of USAC, the Board expected high ethical standards from USAC employees and adopted formal ethical standards at the October 1998 quarterly meeting. The Board also recommended a biennial review of the standards to determine their adequacy, evaluate compliance, and revise them as needed. Ms. Parrino reported that employees have complied with the standards and that the standards have been used in determining financial interest conflicts for employees. Through that experience, staff determined that the threshold established for triggering a report of a possible financial conflict may be too low an amount in relation to the total worth of any particular company; therefore, staff is recommending increasing the dollar threshold and including a percentage interest in a company as another threshold.

Ms. Parrino also pointed out that a revised issue paper was distributed to the Board reflecting new language in the second resolution per the direction of the Executive Committee. At its quarterly meeting on October 19, 2000, the Executive Committee supported both resolutions, but expressed concern about the vague definition of what constitutes an "entity" in the second resolution and directed staff to revise the resolution to reflect that an entity cannot be an individual company or stakeholder and to bring the revised resolution before the Board at this meeting. The Executive Committee approved the first resolution at its October 19, 2000, meeting.

Before voting on either resolution, the Board revised the first resolution to change the wording from ".1 percent of a company's total net worth." to ".1 percent of a company's total equity."

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

RESOLVED, That the USAC Board of Directors accepts the recommendations of the Executive Committee to modify the "Statement of Ethical Conduct for Employees" to define a financial interest in securities valued at less than $15,000 or 1 percent of a company's total equity as presumed not to present a conflict or the appearance of a conflict and that the criteria for evaluating whether a financial interest creates a conflict as approved by the Board at its October 21, 1999, Board meeting be applied to investments above those limits.

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

RESOLVED, That the USAC Board of Directors accepts the recommendation of management to modify the "Statement of Ethical Conduct for Employees" to allow associations, organizations, or other entities which represent a broad range or group of stakeholders to reimburse USAC employees for travel related expenses with prior senior management approval if the following conditions are met: the employee is speaking before the group; the speech is related to USAC business; speaking at the event advances an objective of the Corporation; and reimbursement would not create an impression of conflict.

a5.

Approval of Criteria and Procedure for USAC Board and Committee Executive Sessions. Mr. Gumper explained that he requested staff to develop these criteria and procedures as a result of the confusion the Committees and Board have experienced in the past in determining when it is appropriate to use Executive Session. Mr. Barash noted that the criteria and procedures are modeled after federal open meeting requirements and tailored to meet the corporate mission of USAC. The Executive Committee approved the resolution at its October 19, 2000, meeting.

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

RESOLVED, That the USAC Board of Directors accepts the recommendations of the USAC Executive Committee to adopt the criteria and procedures for conducting USAC business in Executive Session set forth in this issue paper and that the foregoing criteria and procedures for conducting USAC business in Executive Session shall be posted to the USAC web site.

Ms. Hogerty opposed the resolution.

a6.

Update and Possible Actions on USAC's Financial Reporting Issue. Mr. Haga explained that this issue paper addresses the different fiscal years under which USAC and the FCC operates: December 31 for USAC and September 30 for the FCC. Staff proposes to gather additional information before making a recommendation to the Board of Directors concerning a change in USAC's fiscal year to match the FCC's fiscal year. Given the importance of the issue and the potential ramifications to the company, staff seeks approval from the Board to continue its investigation into the matter. The Executive Committee approved the resolution at its October 19, 2000, meeting.

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

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee and directs staff to assess the pros and cons of changing the fiscal period for USAC and provide a report on the issue to the Board of Directors.

a7.

Approval of Administrator's Deadlines for Distributing Universal Service Support and Criteria for Exceptions to the Administrator's Deadlines. Ms. Parrino distributed a revised issue paper reflecting a revision to the first resolution made at the programmatic committees in their quarterly meetings on October 23, 2000. In addition, before voting on any of the resolutions, the Board revised the first resolution by inserting the word "program" before the word "year."

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

RESOLVED, That the USAC Board of Directors accepts the recommendations of the Rural Health Care and Schools & Libraries Committees to establish a deadline of March 31 of the calendar year following the program year in which the costs were incurred for the disbursement of Rural Health Care and Schools & Libraries Program funds.

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

RESOLVED, That the USAC Board of Directors accepts the recommendations of the Programmatic Committees and determines that it is appropriate for USAC to establish absolute and interim deadlines in consultation with the FCC; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendations of the Programmatic Committees to adopt the criteria proposed in this issue paper for setting aside administrative deadlines.

a8.

Approval of Deadline for Revising Revenue Filings. Mr. Haga reviewed the history of action taken by the Board that enables carriers to submit revised revenue data up to 12 months past the original submission date. Mr. Haga also described the process USAC uses in truing up the numbers based on those revenue revisions. In the past, the numbers were trued up as soon as the revisions were received but the contribution factor generally remained the same due to the offset of some carriers under-reporting while others over-reported. However, recent revisions by a few carriers had a significant effect on the contribution base by decreasing it enough to potentially create a shortfall and possibly require a supplemental filing to the FCC. In an effort to avoid such situations in the future, staff suggests that revenue revisions submitted by carriers be trued up in the quarter following the quarter in which the revision was submitted so that the current quarter contribution base is not affected. This action will have no effect on a carrier's ability to make revisions; it simply defers slightly the time in which such revisions will be recognized. The Executive Committee approved the resolution at its October 19, 2000, meeting.

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

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to authorize staff to proceed immediately with the stated procedure providing for the processing of carrier revisions (on FCC Form 499) to previously reported revenues in the quarter subsequent to the quarter included in the current FCC quarterly filing.

a9.

Appointment of a Board Member to the Schools & Libraries Committee. Ms. Parrino reported that she sent an e-mail message to qualifying Board members to solicit each member's interest in serving on the Schools & Libraries Committee. Two members responded. Ms. Ouye, Chair of the Schools & Libraries Committee, then spoke with each one to further determine the interest in order to recommend a member for nomination. All agreed that Mr. Hess would be nominated. The Schools & Libraries Committee subsequently moved Mr. Hess for nomination at its October 23, 2000, meeting.

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

RESOLVED that the USAC Board of Directors accepts the recommendation of the Schools & Libraries Committee to elect Mr. Kevin Hess of the USAC Board of Directors to represent service providers on the Schools & Libraries Committee.

a10.

Appointment of a Nominating Committee and Direction to Committees for the Appointment of Committee Chairs and Committee Vice-Chairs. Ms. Parrino noted that there are six Board member terms expiring at the end of the year, not five as listed in the issue paper: Mr. Abramson's term also expires at the end of the year. The Board members that were proposed for the Nominating Committee have all agreed to serve if elected. Mr. Gumper informed the Board that the FCC has not issued a Public Notice for the current positions that are expiring on the Board. Ms. Parrino reported that USAC staff has taken some steps to inform the stakeholders of the vacancy and the expiring terms and a few names have been suggested. Assuming the FCC provides a list of appointments before the end of the year, Mr. Gumper said that he intended to call a special meeting of the Board in order to elect the new members. He reminded the Board that the USAC By-laws allow Board members whose terms are expiring to continue to serve on the Board until a replacement is found or the Board member is re-appointed. The Executive Committee approved the resolutions at its October 19, 2000, meeting.

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

RESOLVED, That the USAC Board of Directors accepts the recommendation of the Executive Committee to establish a Nominating Committee for the purpose of recommending to the USAC Board of Directors at its January 2001 meeting a slate of candidates for the officer positions and to bring to the USAC Board of Directors at the anticipated December 2000 special Board meeting recommendations for Committee appointments for new Board members; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive Committee to direct each Committee of the Board to bring to the Board of Directors at its January 2001 meeting recommendations for a Chair and Vice-Chair of each respective Committee; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the Executive Committee to appoint Mr. Tom Wheeler as Nominating Committee Chair and Ms. Martha Hogerty and Mr. Isiah Lineberry as members of the Nominating Committee.

On a related matter, Ms. Parrino announced that USAC has an orientation book for new Board members. It will be issued to each new incoming Board member. Current Board members may request a copy as well. Mr. Gumper expressed a preference that for the sake of continuity, the Committees should try to avoid nominating Chairs and Vice Chairs, both of whose Board member terms expire at the end of said year.

a11.

Approval of 1^st Quarter 2001 USAC Consolidated and Common Budget and Information on Estimated 2001 Budget. Ms. Parrino reviewed the potential issues in several of the programs that result in a number of uncertainties in the budget for 2001. The consolidated budget has been reduced. Audit costs are increasing, but the increase is unavoidable. USAC recognizes that audits are an extremely important USAC responsibility, and is looking into ways to avoid duplication of audits. In addition, USAC's compensation and benefits costs are increasing as more work is brought in-house as staff determines when doing so would be more efficient and more economical than contracting out the work. Before voting on the resolutions, the Board noted an error in the resolutions and corrected the year "2000" to "2001." The Executive Committee approved the resolutions at its October 19, 2000, meeting.

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

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve a 1^st Quarter 2001 USAC common budget of $817,800; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve a 1^st Quarter 2001 USAC consolidated budget of $11,825,100.

a12.

Approval of 1^st Quarter 2001 Revenue Projections and Resolution on the November 2000 FCC Filing. Mr. Haga distributed a revised Attachment C. He noted that projected revenues for the 4^th Quarter decreased 3.55 percent from the projected revenues approved by the Board at its July 2000 quarterly meeting. The Executive Committee approved the resolution at its October 19, 2000, meeting.

On a motion duly made and seconded, the Board 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 2000, accepts the recommendation of the Executive Committee to authorize staff to proceed with the required November 2, 2000, filing to the FCC on behalf of USAC. Staff may make adjustments in accordance with approved variance thresholds.

a13.

Approval of Criteria and Procedure for Recommending that the FCC Initiate Enforcement Action Against a Participant in the Universal Service Support Mechanisms. Mr. Barash reported that the Executive Committee and each of the programmatic Committees adopted, at the October 2000 quarterly committee meetings, the resolution before the Board.

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

RESOLVED, That the USAC Board of Directors accepts the recommendations of the USAC Executive Committee and the programmatic Committees to adopt the proposed criteria for recommending FCC enforcement action against a participant in the universal service support mechanisms.

a14.

Delegation of Authority to the Executive Committee in the Matter of FCC Proposed Revenue Base Change. Mr. Barash explained that AT&T has proposed a modification of the prior-year assessment method for calculating Universal Service Fund contributions. The FCC specifically requested that USAC submit comments on this issue and staff is requesting that the Board delegate authority to the Executive Committee to approve the submission of comments to the FCC on this issue. Board members will be provided with an opportunity to review the comments before they are filed with the FCC. The Board DIRECTED staff to make it clear that the comments are limited to administrative and operational issues and that USAC is not taking a policy position.

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

RESOLVED, That the USAC Board of Directors delegates to the Executive Committee the authority to approve comments and reply comments in the FNPRM regarding the assessment methodology and to authorize USAC to file those comments with the FCC.

a15.

Possible Assignment of the Rural Health Care and Schools and Libraries Program Services Agreement - Confidential & Proprietary. On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors determines that discussion of the request to USAC by National Exchange Carrier Association, Inc. to assign the Rural Health Care and Schools and Libraries Program Services Agreement to NECA Services, Inc., shall be conducted in Executive Session.

See Executive Session.

a16.

Miscellaneous.

• Status of Beneficiaries Audit - Confidential & Proprietary. On a motion duly made and seconded, the Board adopted the following resolution:
  
  RESOLVED, That the USAC Board of Directors determines that discussion of the specific findings of the Schools and Libraries Program beneficiary audits should be conducted in Executive Session.
  
  See Executive Session.

i1..

Report of Legislative and Media Activity. Mr. Blackwell distributed Attachment A to the Board. He reviewed four pieces of pending legislation that affect the universal service programs: (1) repeal of federal excise tax; (2) Internet filtering; (3) truth-in-billing; and (4) relieving regulatory burdens on two percent incumbent local exchange carriers.

i2.

Assistant Treasurer's Report. Mr. Haga reported that the Universal Service Fund balance is at the level anticipated by staff for the third quarter. The USF continues to earn more interest than projected because outlays have been delayed in the High Cost and Schools and Libraries support mechanisms.

i3.

Regulatory Report. For information only. No discussion held.

i4.

Report on Accounts Receivable and Collection Efforts. For information only. No discussion held.

i5.

Bankruptcy Report. For information only. No discussion held.

i6.

Status of USAC Clarification Requests at the FCC. For information only. No discussion held.

i7.

Update on a Schools and Libraries Program Subcontractor Claim - Confidential & Proprietary. Mr. Barash reported that there are no significant developments to report concerning this matter, however, if a Board member has questions on this item, they can be addressed in Executive Session. On a motion duly made and seconded, the Board adopted the following resolution:

RESOLVED, That the USAC Board of Directors determines that discussion of the specific claims for additional 1999 funds by National Computer Systems, Inc. be conducted in Executive Session.

See Executive Session.

i8.

Growth of Voice over Internet Protocol Services and USTA Petition Regarding Cable Operators that Provide Telecommunications Services. Mr. Gumper stated that it will be important to pay attention to this issue as more telecommunications services become available over the Internet. The revenue generated from those calls will not necessarily be reported and could result in decreased contributions to the USF. Ms. Parrino stated that USAC's interest is in complying with the FCC rules and that USAC will be very careful not to weigh in on the policy issue. USAC might need to seek clarification from the FCC on what constitutes "telecommunications services" for purposes of service providers reporting to the USF.

i9.

USAC Timeline and Key Dates. For information only. No discussion held.

i10.

Miscellaneous. None.

i11.

High Cost and Low Income Programs Status Report. For information only. No discussion held.

i12.

Review of 1^st Quarter 2001 High Cost and Low Income Programmatic Budget and Information on Estimated 2001 Budget. For information only. No discussion held.

i13.

Review of 1^st Quarter 2001 High Cost and Low Income Projections and Resolution on the November 2000 FCC Filing. For information only. No discussion held.

i14.

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

i15.

Review of 4^th Quarter 2000 Rural Health Care Programmatic Budget. For information only. No discussion held.

i16.

Review of 1^st Quarter 2001 Rural Health Care Projections and Resolution on the November 2000 FCC Filing. For information only. No discussion held.

i17.

Schools and Libraries Program Status Report. For information only. No discussion held.

i18.

Review of 1^st Quarter 2001 Schools and Libraries Programmatic Budget and Information on Estimated 2001 Budget. For information only. No discussion held.

i19.

Review of 1^st Quarter 2001 Schools and Libraries Projections and Resolution on the November 2000 FCC Filing. For information only. No discussion held.

Ten of the nineteen members (there is one vacancy) were present, representing a quorum:

Bryant, Anne

Hess, Kevin

Butler, Tony - by telephone

Jackson, Jimmy

Eichler, Edwin H.

Ouye, Kathleen G.

Gold, Heather

Parrino, Cheryl

Gumper, Frank

Wheeler, Tom

Four members joined the meeting in progress:

Abramson, David

Rosenblum, Lisa

Hogerty, Martha

Sanders, Dr. Jay

Four members were absent:

Isiah, Lineberry

Marockie, Hank

Talbott, Brian

Thoms, Allan

Others present during Executive Session:

Name

Company

Beaver, Tracy

USAC

Blackwell, Mel

USAC

Carroll, Kristy

USAC

Flannery, Irene

USAC

Howard, Cathy

USAC

Moore, Kate

USAC

i7.

Update on a Schools and Libraries Program Subcontractor Claim - Confidential & Proprietary. No discussion was held.

a16.

Miscellaneous.

• Status of Beneficiaries Audit - Confidential & Proprietary. Ms. Moore gave the Board an update on preliminary findings concerning a specific applicant that is the subject of the Schools and Libraries Program audit of beneficiaries. The Board took no action on this item.

Mr. Hess recused himself from the Executive Session prior to discussion of item #a15.

Ms. Bryant left the meeting during the Executive Session discussion of item #a15 due to a prior engagement.

a15.

Possible Assignment of the Rural Health Care and Schools and Libraries Program Services Agreement - Confidential & Proprietary. The Board discussed the pros and cons, including legal issues identified by USAC's General Counsel, of the request by the National Exchange Carrier Association, Inc. (NECA) to assign the Rural Health Care and Schools and Libraries Program Services Agreement to a newly-formed, for profit company, NECA Services, Inc. Mr. Barash noted that both the Rural Health Care and the Schools & Libraries Committees adopted resolutions at their quarterly meetings on October 23, 2000, opposing the assignment.

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

RESOLVED, That the USAC Board of Directors does not authorize the USAC CEO to assign the Rural Health Care and Schools and Libraries Program Services Agreement to NECA Services, Inc.