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FCC to Tell Phone Companies to Follow Low-Price Rule for Schools

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After 15 years of neglect, federal regulators are finally planning to tell phone companies selling services to schools and libraries how to comply with a rule requiring them to charge bargain prices.

Last week ProPublica revealed that the Federal Communications Commission had failed to provide guidance for the low pricing rule case since the 1997 launch of the school program, called E-Rate. Lawsuits and other legal actions in four states turned up evidence that AT&T and Verizon charged local school districts much higher rates than it gave to similar customers or more than what the program allowed.

The preferential pricing rule, called lowest corresponding price, was designed to give schools a leg up in the complicated world of voice and data pricing, and to make sure school children had access to the Internet. But despite evidence of inflated pricing, the FCC never brought an enforcement case against a service provider for violating the rule.

While the main victims of this failure are the nation's schoolchildren who receive suboptimal broadband access, there's another set of victims: the vast majority of people with a cellular or landline phone contract. That's because the program provides a subsidy to schools to help them pay for the telecom services. Telephone consumers pay for this subsidy, usually through a “Universal Service Fund” charge on individual phone bills. The subsidy fund is capped at about $2.25 billion a year.

Schools and libraries draw on this fund to help pay for the services provided by the telecom companies—virtually all schools are eligible, but the poorer the school, the more it can draw. Here's the rub: Requests for help almost always exceed the available funding. So when phone companies charge inflated rates to schools and government regulators turn a blind eye, this fund is depleted faster; fewer schools and libraries benefit; and money taken from millions of telephone customers goes to boost corporate profits instead of to help as many schoolchildren as possible.

Now, the FCC will finally teach phone companies about the preferential pricing rule. Over the next week companies that participate in the program will be attending annual training sessions in Atlanta and Los Angeles that are designed to explain the program's rules. This year's training sessions—unlike those in past years—will include lengthy discussions of the bargain pricing rule, according to a power point presentationRequires Adobe Acrobat Reader posted on the website of the private company that administers the E-Rate program for the FCC, the Universal Service Administration Co.

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The presentation tells companies that schools are "not obligated to ask" for the lowest corresponding price, "but must receive it!"

Asked to explain why the upcoming training sessions for providers were going to discuss the pricing rule for the first time, a spokesman for the FCC released a statement saying the new guidance was "prompted by an internal discussion last August of issues raised in the whistle-blower case."

That case was brought in 2008 by Todd Heath, who audited school telecom bills in Wisconsin. He alleged in federal court that Wisconsin Bell, a unit of AT&T, was charging several schools far more than others for essentially the same services, thus violating the pricing rule. The company says it follows the E-Rate rules and is contesting Heath's allegations in court. One of their defenses is the FCC's lack of guidance about the pricing rule.

ProPublica interviewed several FCC officials responsible for E-Rate last December, in a discussion mostly about the lowest corresponding price rule. None of them mentioned the prospect of new training about the rule, even after it was pointed out that the FCC had provided phone companies virtually no guidance on the price rule for the previous decade.

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