FCC Expected To Scale Back 'E-Rate' Program

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The Federal Communications Commission will not suspend the federal "E-rate" program, despite pressure to do so from key members of Congress, FCC Chairman William E. Kennard told a Senate subcommittee last week. But the program will be scaled back, he said, and will target its telecommunications aid to the poorest schools.

"The best thing we can do, in the best interest of this program and the public, is to proceed ahead prudently ... that is, not to abandon the 30,000 applicants," Mr. Kennard said at an FCC reauthorization hearing. "We have a program in place. We can fix the administrative problems and move ahead."

Schools and libraries have submitted more than 30,000 applications for federal "education rate" discounts of 20 percent to 90 percent on telecommunications services and equipment. The discounts are to be paid for by money collected from telecommunications companies.

The companies have waged a strong fight against the fees, however, and Mr. Kennard acknowledged at the June 10 hearing that the FCC will reduce the scale of the program.

"We plan to reset and resize the fund so money goes to only the most neediest schools," he told the Communications Subcommittee of the Senate Commerce, Science, and Transportation Committee.

The commission so far has collected only $625 million to meet an estimated demand of $2.02 billion in discounts for 1998.

Mr. Kennard did not say what level of funding he considers appropriate. The FCC's five commissioners were expected to set an amount on June 12.

But he added that the FCC intends to stretch out the first "year" of the program over 18 months, thus making the schedule of the E-rate program consistent with most schools' calendars.

An FCC official said the extension of the program would delay some of the work, particularly that of internal wiring in schools, and give the FCC the opportunity to fund more 1998 applications.

'Gore Tax'

While the E-rate program has had critics from the outset, AT&T Corp. and MCI Communications Corp. turned up the heat last month by announcing that beginning July 1, they would add a line-item charge on residential phone bills for the universal service program. Some of the charge would pay for education discounts.

The FCC has insisted that the E-rate program does not require an increase in long-distance phone rates. It has maintained that recent reductions in access charges--fees that long-distance companies pay to local phone companies to enter their markets--offset the cost of the E-rate program.

But the FCC cannot prevent companies from adding a line item on customers' bills or raising their rates.

The move by the long-distance companies spurred the top members of the House and Senate commerce committees to demand that the FCC suspend the program. The lawmakers are Rep. Thomas J. Bliley Jr., R-Va., the chairman of the House committee; Rep. John D. Dingell of Michigan, its ranking Democrat; Sen. John McCain, R-Ariz., who chairs the Senate panel; and Sen. Ernest F. Hollings of South Carolina, the panel's senior Democrat.

"We believe it is too late for the commission to rescue itself merely by tinkering with a fundamentally flawed and legally suspect program," they said in a letter to Mr. Kennard. "Accordingly," they added, "the commission should immediately suspend further collection of funding for its schools and libraries program."

The issue has also taken on elements of partisan politics. Some Republicans, including Speaker of the House Newt Gingrich of Georgia, have dubbed the fee the "Gore tax," in reference to Vice President Al Gore's pledge to connect all the nation's schools to the Internet by 2000. One purpose of the E-rate discounts is to increase connectivity.

The FCC showed signs it might bow to the pressure. In May, it proposed collecting $1.67 billion for the program, instead of the $2.25 billion cap that had initially been set by Congress. It then postponed a vote on the E-rate collection scheduled for June 9 after receiving the letter from the four lawmakers.

Funding Threats

Senators opposed to various aspects of the E-rate program offered numerous criticisms at last week's hearing, but Mr. Kennard attempted to refute them.

In response to arguments that E-rate money should not pay for internal wiring in schools, Mr. Kennard pointed out that half of the requests for such services have come from the poorest schools in the country, those that have half or all of their students qualifying for free school lunches.

To complaints that the Schools and Libraries Corp., an organization set up by the FCC to operate the program, is a bloated bureaucracy, Mr. Kennard said simply, "I disagree," and commended the group of 14 people in the SLC for doing a good job in processing 30,000 applications.

And in response to grumbling that Ira Fishman, the executive director of the SLC, is overpaid at $200,000 a year, Mr. Kennard said the FCC commissioners planned to cut his salary.

Sens. McCain and Ron Wyden, D-Ore., reminded the FCC commissioners--all of whom appeared at the hearing--that Congress could cut or halt the E-rate program through the FCC reauthorization process.

Mr. Wyden asked each of the five commissioners to state whether the commissioner was willing to spend the next six or eight weeks drawing up a plan to fix the underlying problems in the E-rate program.

"Absent that, there's going to be an effort through the appropriations committee to kill this program," the Oregon Democrat predicted.

But Mr. Kennard stood firm on his plans to continue with the program, saying he thought problems with the program could be resolved in days. If the commissioners halted the program for the suggested period of time, "the program will be put on ice," he said. "I don't think we should overestimate the difficulties in resolving these issues."

Sen. John D. Rockefeller IV, D-W.Va., one of the leading proponents of the E-rate idea, urged the commissioners not to worry about threats from lawmakers that they will cut the FCC's budget if the agency proceeds with the program. "It won't happen," he said.

Vol. 17, Issue 40, Pages 33, 36

Published in Print: June 17, 1998, as FCC Expected To Scale Back 'E-Rate' Program
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