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FCC Compromises on School Internet Funding

Controversial e-rate initiative requires telecom companies to subsidize Internet service in rural and poor areas.

By Marc Ferranti, PCWorld   

The FCC voted 3 to 2 to scale back funding earmarked for the plan, called the %dquote-rate%dquot initiative, to $1.275 billion for this year from the original cap of $2.25 billion. The decision came after telecom companies said they were going to hike rates for customers to pay for their contributions to the plan, and after politicians attacked the FCC for bureaucratic waste and misreading Congress%squots intentions in the 1996 Telecommunications Act.

Dissenting statements by some of the commissioners show that the issue will not die. In fact the plan voted on Monday funds universal services only until June 30, 1999.

The idea behind the universal services plan is that telecom companies--common carriers like the Bell companies--contribute to a fund that ensures that people in rural areas and publicly funded institutions get affordable telecom services. The phone companies pass the cost of their contributions to the fund on to customers.

When companies like AT&T recently said they would have to hike rates to pay for the e-rate initiative, politicians started to call for the plan to be put on hold or abandoned. U.S. President Bill Clinton and Vice President Al Gore have also made references to the growing debate recently.

While the Telecommunications Act updated an older version of the universal services fund, stating that schools and libraries should have low-cost access to advanced telecom services, it did not specifically state that these new services referred to the Internet. Several elected officials said that the FCC took a too-liberal reading of the advanced services the Act mentioned.

The FCC has taken the Act to mean that the universal services fund, paid for by charges embedded in rates the telephone companies charge, should help hook schools and libraries to telecom facilities including the Internet.

Today the FCC reached a compromise. Rather than putting the plan on hold or not funding it past this month, the agency scaled back funding for it. The FCC said schools and libraries would get funds on a %dquotpriority basis.%dquot The FCC also said it would combine two administrative entities into one, to cut costs.

Within the next few weeks the FCC will also ask for clarification of some of the language that phone carriers use to let users know exactly what they are paying for--in other words, how much of their bills goes to universal services funds.

%dquotWe%squotve made sure the neediest kids get Internet access, we%squotve reorganized the administrative structure by combining two corporations into one, we%squotve reduced overhead by lowering CEO salaries,%dquot said FCC Chair William Kennard in a statement on Monday.

But there was public dissent within the FCC. The language of today%squots FCC decision permits schools and libraries to use e-rate funds to buy routers, hubs, network file servers, and wireless local area networks, noted Commissioner Henry Furchtgott-Roth, a noted conservative economist.

%dquotSuch internal networks would rival those of the largest corporations,%dquot he said in his statement.

Furchtgott-Roth also noted that large vendors support the e-rate initiative: %dquotThey know a great deal when they see it: Minimally constrained by budgetary consideration, schools and libraries can be expected to purchase the best and most expensive networking equipment.%dquot

In conclusion, Furchtgott-Roth noted that vendors are on a %dquotslippery slope.%dquot After all, he argued, if the government is taxing phone companies to pay for universal telecom services, %dquotwhat%squots to stop the government from taxing computer network manufacturers in order to subsidize computer networks for schools and libraries?%dquot