This document aims to assist understanding of the Telecommunications Act of 1996 and to insure the implementation of a school discount methodology that is rational, equitable, and methodologically defensible. Based on a merged database containing data from 8,814 schools, 5,670,452 students, and 18 telecommunication companies in 7 states, this document addresses four issues. Concerning the first issue, the effect of the proposed discount methodology on schools in various localities, analyses indicate that the failure of the proposed discount matrix to take cost of service into account at free or reduced-price lunch levels above 50 percent unfairly penalizes those districts with high telecommunications rates (usually rural districts). Multiple problems were found with the second issue, whether the use of free/reduced-price lunch percentages at the school building level is an equitable means of determining relative school (or district) wealth, i.e., ability to pay. Its use may be warranted because it has the advantage of year-to-year currency, immediate availability, and appropriateness at the school building level, but three alternative methods for determining discounts are offered. Regarding the third issue, whether the school or the district should be the unit of analysis in determining discount percentages, "school" was found to be preferable, with two exceptions that are discussed. For the fourth issue, which data should be used to determine the cost-of-service factor in the proposed discount matrix, the report recommends that the unseparated loop costs of incumbent local exchange carriers be used as the criteria for determining cost-of-service area. Contains 19 tables and notes on methodology. (TD)