FCC Toughens E-Rate Rules

The Federal Communications Commission (FCC) on Wednesday toughened the rules for its controversial E-Rate program, a $2.25 billion initiative to help schools and libraries connect to the Internet.

Supported by fees added to consumers’ telephone bills, the program is under fire from Congress for alleged abuses ranging from simple paperwork and reporting errors to false billing.

The new FCC rules are aimed at correcting some of the alleged abuses by prohibiting the transfer of equipment purchased through the fund to other locations for three years and limiting support for upgrading or replacing internal connections to no more than twice every five years.

According to the FCC, the rules also create a more “formal and transparent process for updating annually the list of services eligible for support.”

“Today, we adopt a variety of measures designed to simplify fund administration, ensure the equitable distribution of monetary support, and to protect against waste, fraud, and abuse,” FCC Chairman Michael Powell said. “The rules we adopt today should increase the accuracy and effectiveness of disbursements.”

Since the inception of the program in 1997, U.S. schools and libraries have received $9.8 billion in subsidies from the fund. Approximately 90 percent of U.S. schools and libraries have received some assistance from E-Rate. The FCC oversees the program, but outsources administration to the Universal Service Administrative Company (USAC), a private, nonprofit.

Based on a bids, the fund’s top equipment and service providers are IBM, SBC, Verizon, Bellsouth and Qwest. Last December, the USAC began denying or delaying applications by IBM, which received more than $350 million from the fund in 2001.

In January, the Center for Public Integrity, a nonprofit “public service journalism” organization, issued a report claiming E-Rate was “honeycombed” with fraud. The center’s study is based on two FCC audits as well as independent interviews.

That report led to U.S. Rep. Billy Tauzin’s House Energy and Commerce Committee to launch an investigation into the program and the FCC to hold a May forum on possible reform of the program. Following the forum, USAC announced it was organizing a task force to study reform actions.

“These new rules will give applicants flexibility to spread expenditures over two years, but will prevent the same applicants from being funded year after year,” FCC Commissioner Kathleen Abernathy, who organized the May forum on E-rate reform, said.

Tauzin. R.-La., plans a February public hearing on the subject.

“Although USAC has taken corrective actions, such as strengthening its application review process, allegations of waste, fraud, and abuse continue to be raised since GAO (General Accounting Office) last reviewed the program,” Tauzin wrote to Comptroller General David M. Walker last month in requesting a GAO E-Rate report as a prelude to the February hearing.

Tauzin added, “Questions have also been raised about the basic effectiveness of the program’s structure in meeting the goal of connecting schools and libraries to the Internet.”

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