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FCC Adopts E-Rate Reform Rules

WASHINGTON -- The Federal Communications Commission (FCC) adopted new rules Wednesday to "simplify and streamline" its controversial E-Rate program, the $2.25 billion fund designed to help schools and libraries connect to the Internet and financed by fees added to consumers' telephone bills.

Recent FCC audits of the program have discovered abuses ranging from simple paperwork and reporting errors to false billing and other fraud potentially involving hundreds of millions of dollars. Based on the FCC audits and independent interviews, the Center for Public Integrity, a Washington-based non-profit "public service journalism" organization, issued a report claiming the E-Rate program was "honeycombed" with fraud.

The FCC's new "procedural safeguards" calls 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.

"While these are important changes, they represent only the first stage in a more comprehensive reform effort," Commissioner Kathleen Q. Abernathy said. "In particular, we will focus on complementing existing efforts to combat waste, fraud and abuse."

Abnernathy, who chairs the Federal-State Joint Board on Universal Service, is organizing a public forum on potential rule changes to the E-Rate program on May 8.

"I look forward to convening a group of school administrators, service providers, equipment vendors, and other key parties to explore new means of ensuring that funds are disbursed in a fair, efficient, and cost-effective manner," Abernathy said in announcing the public forum.

Following the passage of the 1996 Telecommunications Act, telecoms were faced with the burden of finding a way to cover the costs of providing discounted services to schools and libraries. The telecoms convinced Congress to pass the cost off to consumers by levying a surcharge in the form of a universal service fee on telephone bills.

The E-Rate program is based on a competitive bidding process, and the fund's top service providers include IBM, SBC, Verizon, Bellsouth and Qwest. In December, the Universal Service Administration Company (USAC), which actually administers the program for the FCC, officials began denying or delaying applications by IBM, which received more than $350 million from the fund in 2001.

The problems of the program have prompted calls for action by Congress. On March 14, Billy Tauzin (R-La.), chairman of the House Energy and Commerce committee, and Oversight and Investigations Subcommittee Chairman James Greenwood (R-Pa.) sent letters to the FCC and USAC seeking information related to program funds, management and oversight.

Two weeks later, U.S. Rep. Tom Trancredo (R.-Colo.) introduced legislation (H.R. 1252) to terminate the E-Rate program, calling it an "unfair, unauthorized" tax imposed on Americans.

"This surcharge amounts to nothing more than an additional hidden tax on the already overtaxed American people," Trancredo said.

In light of the criticism, the FCC commissioners Wednesday continually praised the E-Rate program.

"The universal service support mechanism for schools and libraries has helped millions of school children and library patrons gain access to advanced telecommunications services," Abernathy said. "Despite its general success, however, the program -- like any government program -- can be made more efficient and effective. The challenge is to remove unnecessary impediments to the flow of support, while continuing to ensure that adequate safeguards are in place to prevent waste, fraud and abuse."

Added FCC Chairman Michael K. Powell, "The schools and libraries program has done a great deal to strengthen our nation's networks of schools and libraries. Today, due in no small part to the program, 99 percent of all public schools are connected to the Internet."