Though the FCC voted to cut eRate funding, it could have been much worse. Schools and libraries were caught in the midst of a political squabble as an eleventh-hour push from several members of Congress sought to suspend or kill the program altogether.

Uncertainty descended over the eRate from the moment four powerful members of Congress demanded on June 4 that the FCC stop collecting money for the program.

“The commission should immediately suspend further collection of funding for its schools and libraries program,” wrote Sen. John McCain, R-Ariz.; Sen. Ernest Hollings, D-S.C.; Rep. Thomas Bliley, R-Va.; and Rep. John Dingell, D-Mich., in a blistering letter to FCC chairman Kennard.

The four lawmakers are the ranking Republican and Democratic members of the Senate and House Commerce committees, which hold jurisdiction over the FCC. The lawmakers’ letter brought an already heated political battle between supporters and opponents of the eRate to a boil.

The letter prompted the FCC to cancel a meeting on universal service that had been scheduled for June 9. The FCC had been expected to announce its decision on eRate funding at that meeting.

“Consumers’ phone bills are set to increase,” the lawmakers had written. “This is not what we intended when Congress passed the Telecommunications Act of 1996….We believe it is too late for the commission to rescue itself merely by tinkering with a fundamentally flawed and legally suspect program.”

The letter went on to call the FCC’s implementation of the eRate “a spectacular failure.”

An ultimatum

The ultimatum from the four lawmakers followed announcements from AT&T and MCI that they would begin charging their residential customers new fees of up to 6 percent starting in July. These invoice surcharges were ostensibly to offset the cost of providing telecommunications discounts to schools and libraries.

Critics of the eRate charged the FCC with creating a bloated, costly program that is forcing these long-distance phone companies to raise their rates. One of the critics’ main objections was that schools would use the eRate funds to improve existing infrastructure.

In an earlier report to Congress, FCC commissioner Harold Furchtgott-Roth, a Republican who is on record as objecting to his agency’s handling of the eRate, wrote, “This entire [surcharge] dilemma has been caused…by the commission’s misguided and unlawful decision to fund inside wiring and other non-telecommunications services.”

According to the Schools and Libraries Corporation (SLC), the group that administers the discounts, only $655 million, or 33 percent, of the $2.02 billion requested in eRate discounts this year would fund telecommunications services. Sixty-three percent, or $1.3 billion, would fund internal connections such as routers, hubs, and inside wiring.

But supporters of the eRate countered that telcos themselves are to blame for the surcharges. They argued that phone rates shouldn’t be rising because the FCC has lowered the access fees these long-distance companies pay to local companies by more than $2 billion over the past two years. Access-fee reductions should be offsetting the cost of the eRate, they said.

“People’s bills have stayed at, say, $20,” an FCC official said. “But instead of $20, they see $19 plus $1, and they focus on the plus $1.”

“If there’s a problem with the bureaucracy, let’s fix it,” Snowe said. “But that shouldn’t be the ruse for freezing this program.”

On June 4, Sen. Bob Kerrey, D-Neb., had written a letter to the heads of AT&T and MCI blasting them for raising rates in an attempt to stir political opposition to the eRate.

“Congress passed a law that opened vast new opportunities for profit to you, and you are now complaining about sharing a small piece of a growing pie,” Kerrey wrote.

Kerrey pledged to introduce legislation requiring telcos to display their profits on their customers’ bills alongside the new surcharges. “If afterward you still feel the Telecommunications Act of 1996 is costing you too much money, I will be happy to entertain any suggestions for repealing it,” he wrote.

Supporters also maintained that funding only telecommunications services would miss the point of the program, which is to extend internet service to all schools universally. Without the one-time expense of wiring and internal connections, supporters said, discounts for telecommunications services would be virtually useless.

Senate proceedings

The debate spilled over into a Senate Communications subcommittee hearing on June 10, when Kennard and the other FCC commissioners were grilled at length about the program’s cost and efficiency.

“I don’t think anyone in the Senate ever thought that the limited language we included in the 1996 Telecommunications Act would be used to create a massive new entitlement program through universal service,” Sen. Conrad Burns, R-Mont., said in his opening statement.

But Sen. John Rockefeller, D-W. Va., who helped draft the section of the 1996 Telecom Act that created the eRate, saw things differently. As one means of persuading Congress to deregulate the telecommunications industry, he said, telcos promised to fund universal service for schools and libraries.

“We made a deal, and it seems to me we should make people stick to it,” Rockefeller said. “We need to insist on the commitment that these companies made—including AT&T, including MCI.”

A majority of senators pressured the FCC commissioners to suspend the eRate until their concerns about the program could be addressed. But Sen. Olympia Snowe, R-Maine, who also co-authored the eRate provision, blasted her colleagues for trying to kill the eRate.

“If there’s a problem with the bureaucracy, let’s fix it,” Snowe said. “But that shouldn’t be the ruse for freezing this program.”

Prudent progess

Kennard expressed his own determination to push forward “prudently” on the eRate, arguing that the FCC was already addressing legitimate concerns raised by Congress.

“There’s been a lot of misinformation about what is eligible for a discount,” Kennard said, referring to criticism by many members of Congress that schools were using eRate money to fund items such as carpeting and painting. “We need to take this issue off the table.”

Kennard pointed out that the FCC already had voted on May 8 to streamline eRate administration by folding the SLC and the Rural Health Care Corp. into a single entity. The resulting agency was scheduled to begin administering universal service on Jan. 4, 1999. The FCC also would be voting to cut the salaries of SLC officials, Kennard said.

“If we take these issues off the table, we’re left with two things,” Kennard said, “the size of the fund and phone rates.” Overall, he said, long-distance rates are declining—about 6 percent from last year. “Let’s not spread misinformation that this [eRate program] is causing rates to increase overall,” he said.

As for the size of the fund, Kennard said the FCC already had slowed the initiation of the program to address the concerns of telcos. He proposed the FCC ease the need for startup funding by stretching to 18 months the discount payments initially scheduled for disbursement during the first year.

“I submit that the best thing we can do is proceed ahead prudently,” Kennard told the subcommittee. “We shouldn’t abandon the 30,000 applicants who have already invested their time and money in the program.”

Although the basic program appears to have weathered the initial storm of opposition, the eRate seemed destined to be the source of continuing partisan political combat.

Speaking to a communications industry trade show in Atlanta on June 8, House Speaker Newt Gingrich, R-Ga., called the eRate program as administered by the FCC “explicitly wrong.”

“We’ll probably block it in the next two weeks,” said Gingrich without providing details. “It is wrong for five unelected, appointed [FCC] commissioners to be able to establish a tax on every telephone line in the United States.”