FCC Launches E-Rate Inquiry

Three months after a scathing report about the troubled E-rate program, the
Federal Communications Commission (FCC) is launching a comprehensive review
of the school and library Internet subsidy plan.

The review is part of a broader inquiry into the overall operations of the
Universal Service Fund (USF), the long-standing government initiative to
provide affordable phone service in rural America.

The USF also funds the E-Rate program in addition to financing telemedicine
initiatives and assisting low-income families with their phone bills. Nearly
90 percent of U.S. schools and libraries receive subsidies from the fund.

“Managing the USF in an efficient, effective manner is one of the
commission’s core functions,” FCC Chairman Kevin Martin said in a statement
issued late Tuesday. “It is incumbent upon us to take the steps necessary to
improve the operational efficiency of the program while providing greater
certainty to the recipients.”

In a March report to
Congress, the Government Accountability Office (GAO) concluded that despite
the collection and expenditure of billions of dollars since 1998, the FCC
has not developed any measure to track the program’s effectiveness.

The GAO said that a weak oversight structure limits the FCC’s “management of
the program and its ability to understand the scope of any fraud, waste and
abuse within the program.”

The FCC oversees the program, but outsources administration to the private,
nonprofit Universal Service Administrative Company (USAC).

Martin said the review will give the FCC an opportunity to streamline the
funding distribution of the E-Rate program. In both the rural and low-income
programs of the USF, the FCC applies a qualifying formula while the E-Rate
funding is a more complex equation.

One possible approach would be to distribute E-Rate funds directly to
schools and libraries according to their size.

“This type of formulaic approach may hold promise for improving the
administration of the E-Rate and rural health care programs,” Martin said.
“By using a formulaic approach to distribute support directly to schools,
libraries and rural health care providers, the commission may be able to
address the concerns raised by beneficiaries about the growing complexity of
the application process while still ensuring that the programs’ funds are
used appropriately.”

Commissioner Michael Copps issued his own statement praising Martin for
initiating the review, but he also had questions about a formula approach.

“Such a change could also allow funds to be used for unspecified
communications-related services and equipment, rather than requiring
applications that specify services and equipment,” Copps said. “Tying funds
to school size could conceivably result in our rural and insular schools
being denied the funds they need for the extraordinary cost of services in
these areas, just because they have fewer students.”

The E-Rate subsidy was added to telephone bills in 1997 under the Clinton
administration and has been dubbed the “Gore tax” for former Vice President
Al Gore’s enthusiastic support.

Under the program, telecom companies or contractors provide eligible
equipment and services to schools and libraries at a discount, and the
federal government covers the difference through the E-Rate fund.

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