Failing Grade For FCC’s E-Rate Program

A new congressional report determined that the E-rate program, though having good intentions, is poorly managed by the Federal Communications Commission (FCC).

The House Oversight and Investigations Subcommittee said that the mismanagement of the program that funds Internet connections in schools and libraries has led to waste, fraud and abuse.

“The government mismanagement of the E-rate program seems to know few
bounds,” said Rep. Joe Barton (R-Texas), chairman of the Energy and Commerce
Committee, in a statement issued with the report. “Unscrupulous vendors . . . fleeced the program while underserved communities and telephone customers pay the price.”

The “education rate,” or E-rate as it became known, was capped at $2.25
billion a year and is funded through fees on telephone customers.
Republicans fought the program and mockingly call it the “Gore tax” in
reference to then Vice President Al Gore’s unflagging support for the

Since last year, the House has held five hearings examining E-rate waste,
fraud and abuse. In one of the most infamous cases, the government disbursed
$101.2 million from 1998 to 2001 to equip Puerto Rico’s 1,540 schools with
high-speed Internet access.

A later review found very few computers actually connected to the Internet
and $23 million in equipment sitting in unopened boxes in a warehouse.

“The Federal Communications
Commission, these merchants and certain schools all must share in the blame
for this disgrace,” said Barton who promised reform legislation.

The report comes after a nearly two-year investigation of the E-rate program, which began under former Chairman Billy Tauzin and continued under Barton’s

The report concludes that weak competition requirements and poor oversight
by the FCC opened the door for unscrupulous vendors to “completely
manipulate” the competitive process for the E-rate program and goods.

Vendors, however, weren’t the only ones manipulating the program, according to
the report. Some school districts acquired goods and services without using
a formal bidding process, contrary to both the program’s rules and local

In addition, the report said school districts engaged in “gold-plating,”
where schools acquire goods and services far beyond reasonable school
district needs and resources.

In the Telecommunications Act of 1996, Congress expanded the Universal
Service Fund (USF) to assist schools and libraries in
acquiring telecommunications and Internet services. The fund was originally designed to help low-income and rural areas acquire telephone service.

“It is clear to me, as I consider the work laid out in this staff report,
that many E-rate program weaknesses must be addressed legislatively to avoid
waste and misuse,” said U.S. Rep. Ed Whitfield (R-Ky.), the chairman of the
Oversight and Investigations Subcommittee.

Barton and Internet Subcommittee Chairman Fred Upton (R-Mich.) said they
plan to craft legislation “fundamentally reforming the E-rate program.”

The lawmakers said the legislation would begin with more vigorous oversight
by the FCC, which may require additional personnel. They also promised a
full audit of the program.

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