Published Online: May 3, 2005
Published in Print: May 5, 2005, as E-Rate: The Road Ahead

E-Rate: The Road Ahead

Federal officials are scrutinizing the E-rate program to determine whether it should be overhauled, or even ended.

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The federal E-rate program has for eight years provided the financial momentum behind the increasing use of the Internet and other telecommunications services in schools across the country. The greater use of up-to-date communications in classrooms, including distance learning and virtual schools, attests to the success of the program.

But in the next few years—perhaps sooner—the $2.25 billion-a-year program, which Congress and President Clinton authorized as part of the Telecommunications Act of 1996, will face arguments in Congress and elsewhere that it has fulfilled its purpose, or that it must be significantly overhauled because of mismanagement or fraud in the use of E-rate aid.

Those developments are likely, in part, because of a current congressional investigation into admitted, and alleged, waste and fraud by companies that have provided services under the program. Also pushing a re-examination of the program is the expected reopening of U.S. telecommunications law to respond to vast changes in the industry since the “education rate” was designed in 1996.

“The E-rate is under attack for a lot of philosophical reasons,” says Michael Hill, the deputy executive director of the National Association of State Boards of Education, based in Alexandria, Va.

Personnel changes in Washington could also spur developments. For instance, the Federal Communications Commission, which has oversight of the E-rate program, recently installed a new chairman, Kevin Martin, who was appointed by President Bush in March.

See Also
See the accompanying item, “Chart: E-Rate Allocations”

The way E-rate politics work now, organizations representing more than 91,000 schools that have applied for and received the more than $14 billion total in “universal service” discounts on telephone and Internet services—and want the aid to keep flowing—rally behind the E-rate whenever anyone even suggests that the program is flawed or unneeded.

At the same time, though, some supporters of the program acknowledge that it may need updating, and many chafe at its cumbersome procedures and the cloud of uncertainty that has surrounded it.

Hill, for one, says the program may also be politically vulnerable because of its success.

“When 98 or 99 percent of schools are wired to the Internet, one of the arguments is that it has done its job,” he says of the E-rate.

But the data-bearing capacity of the wiring varies from school to school. “Some schools have T1s, and other schools have dial-ups,” Hill points out, referring to more and less sophisticated types of Internet connections.

And advances in technology are creating a demand in schools for broadband connections and access to Internet 2, a more powerful online network developed by colleges and universities. Educational experiences using interactive videoconferencing, for example, require connections with higher data capacity, says Ruth Blankenbaker, the executive director of the Center for Interactive Learning and Collaboration, located in Indianapolis.

“Many schools do not have the networking capabilities sufficient to take advantage of what we are able to do,” Blankenbaker says. “Just because a school has a connection does not necessarily mean they have an adequate connection to do the applications that are available today.”


Part of the E-rate program’s problem is what could be called an architectural defect, a design flaw that may fail key political and organizational tests. As a study released in March 2005 by the U.S. Government Accountability Office, the investigative arm of Congress, suggests, the program’s structure is “unusual to the government.”

To begin with, it is administered by the Universal Service Administrative Co., or USAC, a private, nonprofit, Washington-based company hired by the FCC. Because of that setup, program funds are maintained outside the U.S. Treasury, the report points out, adding that such a structure raises unique accounting issues.

The GAO report contends that the FCC, to which Congress provided only broad outlines for the program, adopted E-rate policies “without conducting a comprehensive assessment to determine which federal requirements, policies, and practices apply to it.”

The GAO concludes that the FCC has failed to oversee the E-rate program adequately. It recommends that the FCC establish “performance goals and measures” for the program and take steps to remove an enormous backlog of applicants’ appeals of funding denials.

Another challenge the E-rate faces is the shrinking financial base for the fund. To stock the universal-service fund, which pays for the E-rate as well as support for services used by rural health-care organizations and for lowering the cost of phone service in high-cost areas, the FCC levies a share of the telecommunications industry’s revenue from telephone services, including wireless phones. But those levies are shrinking, as more of that revenue-producing traffic shifts from telephones to the Internet. The FCC had to raise its universal-service-fund tax to about 10 percent, up from about 3 percent in 1998.

Experts also say slow decisions by USAC on procedures and applications, and by the FCC on policies and appeals, have often delayed the distribution of discount awards, and create a perception of the program as a bogged-down bureaucracy.

That perception was reinforced in spring 2004 when the FCC decided that E-rate funds were subject to the federal Antideficiency Act, a technicality that put USAC administrators in peril of criminal charges if they committed federal funds that they did not have in hand.

In August 2004, USAC suspended E-rate awards to schools until the money was in hand, which stalled school telecommunications projects costing up to millions of dollars, until President Bush signed a measure Congress passed that included a one-year exemption from the accounting rules.


A small part of the 1996 overhaul of telecommunications policy, the provision authorizing the E-rate was the product of bipartisan cooperation in Congress, a success credited largely to the Clinton administration. The program’s design took shape in the mid-1990s, when the Internet was growing in popularity and businesses were beginning to use it more and more. At the same time, only 3 percent of school instructional rooms—classrooms, computer labs, libraries, and media centers—had access to the Internet, according to the National Center for Education Statistics.

“The timing was right; everything lined up correctly; we knew the schools didn’t have this access, and we predicted it was going to be so incredibly essential,” recalls Linda G. Roberts. As the director of the office of educational technology at the U.S. Department of Education at the time, she contributed ideas to the FCC’s design committee of state regulators and public advocates, led by Reed E. Hundt, then the chairman of the FCC.

Roberts adds: “Our thinking was the way in which the universal-service fund had made it possible for any community to have basic telephone service, even in rural areas, the universal-service fund would subsidize the high cost of bringing telecommunications services to schools across the country.”

Considering all the latest controversies surrounding the E-rate, she still believes the program’s “placement under the FCC was exactly correct; that’s where it needed to be.”

“It broadened the notion of universal service, and in a very, very positive, important way,” she says of the E-rate. “It turned out that that telecom-policy decision was an equally important education decision.”

When examined by policymakers in other countries, she adds, “what we did in the U.S. is viewed today as a landmark, an incredibly enlightened decision.”

Despite the E-rate program’s troubles, Roberts believes many members of Congress still support the effort. And she believes it can continue to benefit schools.

Looking ahead, Roberts believes the program should remain under the umbrella of the FCC. She also suggests that even if schools have access to the Internet, the quality of that access is questionable, especially for poorer schools that can benefit from the E-rate.

“The job is not done,” Roberts says, “and so I think it is very important to look at the E-rate and ask the question: What haven’t we finished?”

Vol. 24, Issue 35, Pages 30-31

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