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Schools, Libraries Call for More E-Rate Reforms

WASHINGTON -- School and library officials speaking at a Federal Communications Commission (FCC) Thursday placed the blame for fraud and waste in the FCC's troubled E-rate program on vendors, consultants and complicated government procedures. One of the program's largest vendors, BellSouth, said the program needs tougher rules to eliminate opportunities for schools to "game the system."

A part of the Universal Service Fund, the E-Rate program is a $2.25 billion fund designed to help schools and libraries connect to the Internet and financed by fees added to consumers' telephone bills. The program is capped at $2.25 billion annually to provide eligible schools and libraries with discounts ranging from 20-90 percent for authorized services.

Since its inception in 1997, the number of schools connected to the Internet has increased from 14 percent to 87 percent.

In January, the Center for Public Integrity, a Washington-based non-profit "public service journalism" organization, issued a report claiming the program was "honeycombed" with fraud. The center's study is based on two FCC audit reports and independent interviews.

The FCC audits have discovered abuses ranging from simple paperwork and reporting errors to false billing and other fraud potentially involving hundreds of millions of dollars.

The scandal has prompted a Congressional investigation and led to tougher new rules enacted last month by the FCC, but participants in Thursday's FCC forum on E-Rate reform say more needs to be done.

"Overly complex policy is a major contributor to applicant abdication of responsibilities to vendors who are more than happy to help applicants through the process," said Greg Weisiger, representing the Virginia Department of Education.

Weisiger also said the employment practices for program reviewers at the Universal Service Administration Company (USAC), the agency actually regulating the FCC program, needs to be reformed.

In order to facilitate application processing, USAC hires temporary workers each year. They are trained in an extensive two-week regiment and thrown on the front lines of application review," Weisiger said. "They must deal with sometimes frustrated applicants and sometimes frustrating state coordinators. They must learn nuances of state or local procurement law and particulars of state or regional contracts."

If the temporary USAC employee has a bad day, Weisiger said, it can "only mean subsequent bad days for Virginia applicants." When they have done a good job, he noted, the reviewer's reward is termination.

BellSouth's president of regulatory and external affairs, Margaret Greene, said the FCC should consider reducing the discount rate offered to schools.

"Applicants do not have enough incentive to control project costs and service providers have too much incentive to inflate costs by selling services at technology levels far beyond needs for similarly situated schools and libraries nationwide," Greene said. "Adjusting the discount matrix would put natural market forces back to work in favor of E-rate compliance, as opposed to the 'gold rush' mentality that a 90 percent discount has created."

Greene said BellSouth supports a discount rate that would not exceed 75-80 percent.

Toni Pickle, the division manager of rural education for Oklahoma-based Pioneer Telephone Cooperative, called for tougher enforcement rules to include consultants who work with schools on their E-rate qualifications and applications.

"There should be penalties for those who are 'paid experts' of the program who knowingly violate established policy," Pickle said. "Today, consultants violate the competitive bidding process as an 'invisible' third party without any risk or consequence."

In last month's rule changes, the FCC adopted new regulations to "simplify and streamline" its controversial program, including approving new "procedural safeguards" that call for persons convicted of criminal violations or held civilly liable for misconduct from participation in the E-Rate program be debarred from the program for three years and, where circumstances warrant, longer periods.

Additionally, the FCC clarified that requests for duplicative services -- services that deliver the same functionality to the same people during the same period of time -- will no longer be funded.

All of Thursday's participants endorsed the new FCC rules and praised the Commission's actions.

"I am confident that neither Congress nor the FCC could have fully understood all the complexities of the program they had created or the issues that would arise," said Greene. "That is pretty clear by the lack of enforcement mechanisms in the original rules."