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eRate survives telcos’ legal assault: Appeals court upholds $2.25 billion program as constitutional

From Staff Reports
September 1st, 1999

The $2.25 billion eRate program, which provides telecommunications discounts to schools and libraries, survived a major legal challenge late in July when a federal appeals court ruled that the Federal Communications Commission (FCC) implemented the program legally.

While educators and political supporters hailed the decision as a “huge win for America’s children,” industry insiders said the court’s ruling is unlikely to buffer the program from further political attacks.

The 5th U.S. Circuit Court of Appeals ruled July 30 that the FCC has the authority to collect fees from telecommunications companies to pay for the eRate. The court also ruled that schools and libraries can apply the discounts toward internet access and internal connections as well as telecommunications services.

Several telecommunications companies, including Bell South, Southwestern Bell, GTE, and numerous states’ utility commissions, had challenged various aspects of the eRate.

When the case was heard before the 5th Circuit Court in December, attorneys for the plaintiffs argued that extending the universal service program to include discounts on internet access would allow providers such as America Online, which does not have its own telephone circuits, to participate in the low-cost program without having their customers pay subsidies.

But FCC attorney Christopher Wright said AOL and other internet service providers pay into the universal service fund indirectly because they pay telephone line access charges.

Telecommunications companies also contended that the eRate is an “unconstitutional tax” and that the FCC had exceeded its authority when it ruled the discounts could apply to the wiring, hubs, and switches necessary to bring internet access into classrooms. Their concerns have been echoed by several members of Congress, including influential members of the Senate and House telecommunications subcommittees.

Tom Magee, an attorney with Vorys, Sater, Seymour and Pease LLP, a firm that specializes in eRate issues, said the program is still ripe for congressional review despite the court’s ruling.

“The court sidestepped the core complaint that the FCC exceeded its authority,” Magee said, noting that the decision was based on the premise that the Telecommunications Act of 1996, the law that established the eRate, didn’t explicitly forbid the FCC from applying the discounts toward internal connections. “It’s our understanding that certain members of Congress feel this opinion is all over the place–so I don’t think it’s a dead issue.”

‘A huge win’

The 5th Circuit Court ruling was not a total victory for the FCC, as the court said the agency can only collect fees to pay for the program on interstate telecommunications services, not in-state services. Given the court’s action, the FCC will have to revisit its formula for collecting money to support the eRate.

But other key elements of the program, including provisions for funding the wiring of schools and allowing internet service providers to benefit from the subsidies, were upheld.

FCC Commissioner Susan Ness called the ruling “a huge win for America’s children.” Vice President Al Gore, whose support of the eRate led opponents to call it the “Gore tax,” also applauded the decision.

“This decision is a victory for America, a victory for our schools and libraries, and a victory for the future of all American children,” Gore said in a statement.

The court’s decision came as the Schools and Libraries Division (SLD) of the Universal Service Administrative Co., which administers the program on behalf of the FCC, issued its fourth wave of Year Two funding commitment letters. Wave four brought the total dollar amount committed to schools and libraries for the program’s second year to $270 million as of July 30.

Bell South had joined the suit but withdrew last November, saying it believed “that most major issues…will be resolved through the regulatory process in place today.” SBC Communications subsequently withdrew the following month, saying its commitment to education was “such that we don’t feel the need to work out these differences in court.”

The eRate, officially known as the Universal Service Fund for Schools and Libraries, provides discounts ranging from 20 percent to 90 percent to all K-12 public and private schools and all public libraries on telecommunications services, internet access, and internal connections.

In its first year, the program provided more than $1.67 billion in discounts to 25,000 school and library applicants. This year’s total funding will reach $2.25 billion, to be split among 32,000 applications.

eRate survives telcos’ legal assault: Appeals court upholds $2.25 billion program as constitutional

Dennis Pierce
September 1st, 1999

The $2.25 billion eRate program, which provides telecommunications discounts to schools and libraries, survived a major legal challenge late in July when a federal appeals court ruled that the Federal Communications Commission (FCC) implemented the program legally.

While educators and political supporters hailed the decision as a “huge win for America’s children,” industry insiders said the court’s ruling is unlikely to buffer the program from further political attacks.

The 5th U.S. Circuit Court of Appeals ruled July 30 that the FCC has the authority to collect fees from telecommunications companies (telcos) to pay for the eRate. The court also ruled that schools and libraries can apply the discounts toward internet access and internal connections as well as telecommunications services.

Several telcos, including Bell South, Southwestern Bell, GTE, and numerous states’ utility commissions, had challenged various aspects of the eRate.

When the case was heard before the 5th Circuit Court of Appeals in December, attorneys for the plaintiffs argued that extending the universal service program to include discounts on internet access would allow providers such as America Online, which does not have its own telephone circuits, to participate in the low-cost program without having their customers pay subsidies.

But AOL and other internet service providers pay into the universal service fund indirectly because they pay telephone line access charges, FCC attorney Christopher Wright contended.

Telecommunications companies also argued that the eRate is an “unconstitutional tax” and that the FCC had exceeded its authority when it ruled the discounts could apply to the wiring, hubs, and switches necessary to bring internet access into classrooms. Their concerns have been largely echoed by several members of Congress, including influential members of the Senate and House telecommunications subcommittees.

Tom Magee, an attorney with Vorys, Sater, Seymour and Pease LLP, a firm that specializes in eRate issues, said the program is still ripe for congressional review despite the court’s ruling.

“The court sidestepped the core complaint that the FCC exceeded its authority,” Magee said, noting that the decision was based on the premise that the Telecommunications Act of 1996, the law that established the eRate, didn’t explicitly forbid the FCC from applying the discounts toward internal connections. “It’s our understanding that certain members of Congress feel this opinion is all over the place—so I don’t think it’s a dead issue.”

‘A huge win’

The 5th Circuit Court ruling was not a total victory for the FCC, because the court said the agency can only collect fees to pay for the program on interstate telecommunications services, not in-state services. Given the court’s action, the FCC will have to revisit its formula for collecting money to support the eRate.

But other key elements of the program, including provisions for funding the wiring of schools and allowing internet service providers to benefit from the subsidies, were upheld.

FCC Commissioner Susan Ness called the ruling “a huge win for America’s children.” Vice President Al Gore, whose support of the eRate led opponents to call it the “Gore tax,” also applauded the decision.

“This decision is a victory for America, a victory for our schools and libraries, and a victory for the future of all American children,” Gore said in a statement.

The court’s decision came as the Schools and Libraries Division (SLD) of the Universal Service Administrative Co., which administers the program on behalf of the FCC, issued its fourth wave of Year Two funding commitment letters. Wave four brought the total dollar amount committed to schools and libraries for the program’s second year to $270 million as of July 30.

Bell South had joined the suit but withdrew last November, saying it believed “that most major issues…will be resolved through the regulatory process in place today.” SBC Communications subsequently withdrew the following month, saying its commitment to education was “such that we don’t feel the need to work out these differences in court.”

The eRate, officially known as the Universal Service Fund for Schools and Libraries, provides discounts ranging from 20 percent to 90 percent to all K-12 public and private schools and all public libraries on telecommunications services, internet access, and internal connections.

In its first year, the program provided more than $1.67 billion in discounts to 25,000 school and library applicants. This year’s total funding will reach $2.25 billion, to be split among 32,000 applications.

Federal Communications Commission

http://www.fcc.gov

Schools and Libraries Division

http://www.sl.universalserviceorg

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