January 23, 2003 Minutes

Eighteen of the nineteen members were present representing a quorum:

Bryant, Anne - by telephone

Hughes, Alison

Buller, Karen - by telephone

Jackson, Jimmy - Secretary

Campbell, Anne

Jortner, Wayne

Conn, David

Lubin, Joel - Vice Chair

Cornell, Diane

Parrino, Cheryl

Davis, Fr. Bill

Rivera, Robert

Eichler, Ed - Treasurer

Sanders, Dr. Jay

Gumper, Frank - Chair

Sanford, Jo Anne

Hess, Kevin

Talbott, Dr. Brian

One member joined the meeting in progress:

Coltharp, Jim

Officers of the Corporation present:

Others present for the meeting:

Name

Company

Davis, Craig

USAC

Davis, Ta'Nea

USAC

Faunce, Donna

USAC

Gallant, Pam

USAC

Garnett, Paul

FCC

Khan, Sameer

USAC

Howard, Cathy

USAC

Majcher, Karen

USAC

Miller, Linda

USAC

Parry, John

NECA

Scott, Wayne

USAC

Trew, Anne Marie

USAC

a1.

Annual Election of Officers and Committee Chairs and Vice Chairs. Ms. Parrino reported to the Board the nominations for officers and Committee Chairs and Vice Chairs as recommended by the Nominating Committee and the respective programmatic Committees. However, she said that no nominations for Treasurer had yet been put forth. Mr. Jortner was then nominated Treasurer. Ms. Parrino recommended that the Board elect Mr. Robert Haga, USAC Vice President of Strategic Planning & USAC Operations, as Assistant Secretary in an effort to align the responsibilities for USAC corporate records under one person. She said that the Vice President of Strategic Planning & USAC Operations is currently responsible for all corporate records, including the records retention policy and the safe keeping of confidential materials, and therefore recommended that the Board elect Mr. Haga as Assistant Secretary.

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 USAC Nominating Committee to elect Mr. Frank Gumper as Chair of the Board of Directors; Mr. Joel Lubin as Vice Chair; Mr. Jimmy Jackson as Secretary; Mr. Wayne Jortner as Treasurer; Mr. Robert Haga as Assistant Secretary; and Mr. Mark Carmichael as Assistant Treasurer for the term of one year that shall begin at the conclusion of the January 2003 quarterly Board meeting and that shall conclude at the close of the January 2004 quarterly Board meeting; and,

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendations of the USAC High Cost & Low Income Committee to elect Mr. Kevin Hess as Chair and Mr. Joel Lubin as Vice Chair of the USAC High Cost & Low Income Committee for the term of one year that shall begin at the conclusion of the January 2003 quarterly Board meeting and that shall conclude at the close of the January 2004 quarterly Board meeting; and,

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendations of the USAC Rural Health Care Committee to elect Dr. Jay Sanders as Chair and Mr. Jimmy Jackson as Vice Chair of the USAC Rural Health Care Committee for the term of one year that shall begin at the conclusion of the January 2003 quarterly Board meeting and that shall conclude at the close of the January 2004 quarterly Board meeting; and,

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendations of the USAC Schools & Libraries Committee to elect Dr. Brian Talbott as Chair and Ms. Anne Bryant as Vice Chair of the USAC Schools & Libraries Committee for the term of one year that shall begin at the conclusion of the January 2003 quarterly Board meeting and that shall conclude at the close of the January 2004 quarterly Board meeting; and,

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendations of the USAC Audit Committee to elect Mr. Ed Eichler as Chair and Ms. Anne Campbell as Vice Chair of the USAC Audit Committee for the term of one year that shall begin at the conclusion of the January 2003 quarterly Board meeting and that shall conclude at the close of the January 2004 quarterly Board meeting.

a2.

Approval of the Minutes. On a motion duly made and seconded, the Board approved the minutes as distributed of the meetings of Tuesday, October 22, 2002, and Monday, December 16, 2002.

a3.

Reports from the Committee Chairs. Each of the Chairs of the programmatic Committees reported on the issues discussed and the action taken within each Committee since the October 2002 quarterly meetings, respectively: Dr. Talbott - Schools & Libraries Committee; Mr. Lubin - High Cost & Low Income Committee; Dr. Sanders - Rural Health Care Committee; Mr. Eichler - Audit Committee; and Mr. Gumper - Executive Committee. See the minutes of each Committee meeting for a full accounting of the discussions and actions taken by the Committees.

a4.

Board of Directors Photo Shoot. Mr. Blackwell distributed a rough draft of the USAC 2002 Annual Report and requested comments be sent to him by February 7, 2003. He said that a group picture would not be necessary for the report as he is planning on inserting individual pictures rather than a group picture in the report.

a5.

Adoption of a Resolution to Honor Mr. Isiah Lineberry. Ms. Parrino reviewed the proposed resolution and letter commemorating Mr. Isiah Lineberry's service on the USAC Board of Directors and as a charter member of the Board of Directors of the former Rural Health Care Corporation. Mr. Lineberry's term ended December 31, 2002. Dr. Sanders echoed Ms. Parrino's sentiments.

The Board DIRECTED USAC staff to send Mr. Lineberry a copy of the resolution along with a plaque commemorating his service as a founding member of the USAC Board.

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

RESOLVED, That the USAC Board of Directors hereby expresses its profound appreciation to Mr. Isiah Lineberry for his service on the Boards of Directors for the Universal Service Administrative Company and the Rural Health Care Corporation, respectively, and wishes him the best in his future endeavors.

a6.

Approval of January 2004 - January 2005 Board of Directors Quarterly Meeting Schedule. Ms. Howard reviewed the proposed schedule of quarterly Board and committee meetings through January 2005. She noted that USAC staff is recommending a change to the established January 2004 meeting dates to a week later, which in turn would move the due dates for drafting and finalizing issue papers to after the first of the year, in an effort to alleviate having to prepare issue papers over the holiday season.

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

RESOLVED, That the USAC Board of Directors adopts the following Board of Directors and Committee quarterly meetings schedule for January 2004 - January 2005:

a7.

Review of the Board Meeting Attendance Policy. Mr. Gumper reviewed the history of the Board's current Meeting Attendance Policy. He reminded the Board that the policy only applies to quarterly Board meetings, members are allowed to participate by phone, excused absences are at the discretion of the Chair, and USAC cannot remove a Board member found in violation of the policy, because only the FCC Chair has the authority to remove a USAC Board member.

After discussion among the Board, the consensus was to leave the current policy in place but to DIRECT the CEO to review the policy with new Board members during orientation. The sense of the Board was that attendance problems at the Committee level would be addressed on a case-by-case basis by the Committee chairs. The Board also determined that although some felt it more productive if members participated in person for the meetings, the USAC By-laws clearly state that participation by telephone is acceptable and that by allowing telephone participation, the Board is supporting one of the goals of the Universal Service Support Mechanisms, which is to connect people through telecommunications services. No action was taken on this item.

a8.

Approval of Audit Committee Charter. Ms. Parrino recalled for the Committee that when the USAC Board of Directors formed the Audit Committee on December 16, 2002, USAC management proposed to create an Audit Committee Charter to define the role, responsibilities, and reporting structure of the new Committee. She said that USAC staff developed the draft Audit Committee Charter based on "best practices" in the industry. She pointed out two changes to the Board's initial thinking regarding the charter: (1) instead of requiring that the two at-large members have a background in financial reporting, accounting, auditing, or other financial expertise, the language now states that at least one of any of the five members of the Committee should have this background, and (2) added independent requirements for Audit Committee membership that address previous or current employment with USAC and possible family relationships with members of USAC management. Ms. Parrino said that the Audit Committee accepted the proposed Audit Committee Charter as presented.

After discussion among the Board, the Board determined to postpone approval of the Audit Committee Charter and DIRECTED USAC staff to revise the charter based on Board member comments, including the following: (1) clearly define "accept" versus "approve" when used in a resolution "accepting" or "approving" audit reports; (2) more thoroughly detail the relationship between the programmatic committees and the Audit Committee, including the role of each regarding audit responsibilities, audit report review, and audit report approval; (3) clarify the budget authority of the Audit Committee; (4) clarify standards for other Board member attendance at Executive Sessions of the Audit Committee; and (5) review the charter to determine if the directives cover both programmatic and financial audits that may be performed by or for USAC. No action was taken on this item.

In accordance with the approved criteria and procedure for conducting USAC Board and Committee business in Executive Session, and at the direction of Mr. Gumper, Mr. Barash explained that USAC staff recommends that discussion of confidential and proprietary agenda items aBOD09, aBOD10, aBOD13, aBOD14_02, and aBOD14_03 be conducted in Executive Session for the following reasons:

a9.

Approval of Course of Action Regarding USAC's Contract for Billing, Collection, Disbursement, and Other Financial Services - Confidential & Proprietary - Executive Session. Discussion of this matter-which relates to USAC's procurement strategy and contract negotiations-in open session would compromise USAC's negotiation strategy to the detriment of the corporation and the Universal Service Fund.

a10.

Approval of Proposed USAC Washington Office Space Plan and Authorization to Enter into a Lease - Confidential & Proprietary - Executive Session. Discussion of this matter-which relates to USAC's procurement strategy and contract negotiations-in open session would compromise USAC's negotiation strategy to the detriment of the corporation and the Universal Service Fund.

a13.

Board of Directors Governance Matters - Confidential & Proprietary - Executive Session. Discussion of this matter-which, among other things, relates to issues regarding the fiduciary obligations of Board of Directors members upon which the Board has consulted with and sought the advice of counsel-in open session would compromise the continued applicability of the attorney-client privilege.

a14.

Miscellaneous.

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

RESOLVED, That the USAC Board of Directors determines that discussion of agenda items aBOD09, aBOD10, aBOD13, aBOD14_02, and aBOD14_03 shall be conducted in Executive Session.

See Executive Session for a report of discussion and action taken on each of these items.

a12.

Approval of 2nd Quarter 2003 Revenue Projections and Resolutions for the February 28, 2003, FCC Filing. Mr. Carmichael reported that staff would be incorporating the recent contribution base methodology changes ordered by the FCC into calculation of the Universal Service Fund contribution base. He stated that the contribution factor was maintained at approximately 7.3 percent for the 1st Quarter 2003 and that approximately $246 million in unused Schools and Libraries Support Mechanism funds were used to offset collections. However, Mr. Carmichael noted that pursuant to FCC order the 1st Quarter 2003 was the last quarter that unused funds would be used. This will result in a likely increase to the contribution factor for 2nd Quarter 2003.

Board members expressed concern that if the contribution base increases dramatically, there could be negative consequences with contributors and DIRECTED USAC staff to develop a communication and education strategy to address that issue.

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

RESOLVED, That the USAC Board of Directors, having reviewed at its meeting on January 23, 2003, a summary of the current status of the February 28, 2003, FCC filing requirements, accepts the recommendation of the USAC Executive Committee to authorize staff to proceed with the required February 28, 2003, filing to the FCC on behalf of USAC using a preliminary estimate of $18,774.078 million for the contribution base. Staff may make adjustments in accordance with the approved $1.25 billion variance threshold.

a14.

Miscellaneous.

il.

Report of Legislative and Media Activity. Mr. Blackwell reported that the 107th Congress had adjourned resulting in all pending legislation dying. To date, there were no bills introduced affecting the Universal Service Fund from the 108th Congress.

He then discussed media activity and reviewed several recent media reports concerning the integrity of the Schools and Libraries Support Mechanism. The Board discussed the media reports and their potential impact on the Universal Service Fund. Ms. Parrino asked to revisit this item during Executive Session, specifically the issues raised in the media articles, because further discussion of this matter in open session would result in public disclosure of confidential techniques and procedures that would compromise the integrity of the administration of the universal service support mechanisms. She also suggested that the Board form an ad hoc committee to further address the issues raised in the media reports. The Board agreed. Ms. Buller, Mr. Coltharp, Ms. Cornell, Mr. Gumper, Mr. Lubin, Ms. Parrino, and Dr. Talbott volunteered to serve on the committee.

i2.

Assistant Treasurer's Report. For information only. No discussion held.

i3.

Regulatory Report. For information only. No discussion held.

i4.

Report on Accounts Receivable Delinquent Over 30 Days and Collection Efforts. For information only. No discussion held.

i5.

Disposition of Administrator Appeals by USAC Staff. For information only. No discussion held.

i6.

Report on Pending Litigation and Bankruptcy Matters. For information only. No discussion held.

i7.

Update on Universal Service Support Mechanisms Enforcement Activity. For information only. No discussion held.

i8.

USAC Organization Chart. For information only. No discussion held.

i9.

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

i10.

Miscellaneous. None.

Status Report on USAC Audits. For information only. No discussion held.

2003 USAC Internal Audit Plan. For information only. No discussion held.

Internal Audit Division Report on the 2002 Internal Audit Plan. For information only. No discussion held.

High Cost and Low Income Support Mechanisms Update. For information only. No discussion held.

Review of Annual 2003 and 2nd Quarter 2003 High Cost and Low Income Programmatic Budgets. For information only. No discussion held.

Review of 2nd Quarter 2003 High Cost and Low Income Support Mechanisms Projections and Resolution on the January 31, 2003, FCC Filing. For information only. No discussion held.

Rural Health Care Support Mechanism Update. For information only. No discussion held.

Review of Annual 2003 and 2nd Quarter 2003 Rural Health Care Programmatic Budgets. For information only. No discussion held.

Review of 2nd Quarter 2003 Rural Health Care Support Mechanism Projections and Resolution on the January 31, 2003, FCC Filing. For information only. No discussion held.

Schools and Libraries Support Mechanism Update. For information only. No discussion held.

Review of Annual 2003 and 2nd Quarter 2003 Schools and Libraries Programmatic Budgets. For information only. No discussion held.

Review of 2nd Quarter 2003 Schools and Libraries Support Mechanisms Projections and Resolution on the January 31, 2003, FCC Filing. For information only. No discussion held.

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

Buller, Karen - by telephone

Hess, Kevin

Campbell, Anne

Hughes, Alison

Coltharp, James

Jackson, Jimmy - Secretary

Conn, David

Lubin, Joel - Vice Chair

Cornell, Diane

Parrino, Cheryl

Davis, Fr. Bill

Sanders, Dr. Jay

Eichler, Ed - Treasurer

Talbott, Dr. Brian

Gumper, Frank - Chair

Three members joined the meeting in progress:

Jortner, Wayne

Sanford, Jo Anne

Rivera, Robert

One member was absent:

Bryant, Anne

a9.

Approval of Course of Action Regarding USAC's Contract for Billing, Collection, Disbursement, and Other Financial Services - Confidential & Proprietary - Executive Session. Mr. Carmichael reviewed the history of USAC's contract with PricewaterhouseCoopers Consulting (PwCC) for billing, collection, disbursement, and other financial functions related to administration of the Universal Service Fund; the acquisition of PwCC by IBM Corporation and subsequent assignment of the contract to IBM Corporation; and the conflict of interest issues created by the fact that IBM is both a USAC contractor and a recipient of substantial funding through the Schools and Libraries Support Mechanism. Mr. Carmichael described various options and recommended a course of action for USAC to take regarding this matter. Mr. Carmichael noted that a new resolution was being proposed to address the budget increase necessary to implement the recommended course of action. The Board discussed the various options and amended the added resolution to correct the amount of the proposed budget increase.

On a motion duly made and seconded, the Board adopted the following resolutions as amended (in italics):

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee and approves the course of action proposed by staff regarding the performance of billing, collection, and other services associated with the administration of the Universal Service Fund; and

RESOLVED FURTHER, That the USAC Board of Directors approves an increase in the USAC budget of $5,411,826 for one time costs and $5,550,600 recurring annual costs in association with the approval of the course of action proposed by staff regarding the performance of billing, collection, and other services associated with the administration of the Universal Service Fund.

a14.

Miscellaneous.

Board members Mr. Coltharp, Mr. Hess, Mr. Lubin, and Ms. Sanford left the meeting at this point.

a10.

Approval of Proposed USAC Washington Office Space Plan and Authorization to Enter into a Lease - Confidential & Proprietary - Executive Session. Mr. Haga reviewed the options and recommended course of action for office space for USAC in Washington, DC.

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 approves the course of action proposed by USAC management regarding the office space needs for the USAC Washington office.

Board member Mr. Jortner joined the meeting during discussion of the following item.

a14.

Miscellaneous.

a13.

Board of Directors Governance Matters - Confidential & Proprietary - Executive Session. Mr. Gumper announced that due to the unexpected length of the Board meeting, he suggested that the Board postpone this item until the Board's April 2003 quarterly meeting. The Board agreed.

The Board adjourned from Executive Session and reconvened in open session at 1:52 p.m. to report the discussions and actions of the Board during Executive Session and to continue with other agenda items in open session.

Board member Ms. Campbell left the meeting at this point.

a11.

Approval of Annual 2003 and 2nd Quarter 2003 USAC Common and Consolidated Budgets. Mr. Carmichael distributed a supplement of the revised budget numbers to reflect increases that affect both the annual 2003 and 2nd Quarter 2003 USAC consolidated budgets as approved at the respective 2003 January quarterly meetings. These include the changes discussed in agenda items #aBOD09 and #aBOD14_02 reflected in these minutes and the change discussed in agenda item #aSL07_02 of the USAC Schools & Libraries Committee minutes of January 22, 2003.

On a motion duly made and seconded, the Board adopted the following resolutions as amended (in italics). Ms. Buller voted no due to the concerns expressed in agenda item #aBOD14_02.

RESOLVED, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve an annual 2003 USAC common budget of $6,939,500; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve a 2nd Quarter 2003 USAC common budget of $1,835,200; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve an annual 2003 USAC consolidated budget of $63,595,438; and

RESOLVED FURTHER, That the USAC Board of Directors accepts the recommendation of the USAC Executive Committee to approve a 2nd Quarter 2003 USAC consolidated budget of $18,299,466.