Beginning next April, all unused eRate funds will be carried over to subsequent program years and distributed as additional funding to schools and libraries, the Federal Communications Commission (FCC) ruled June 13.

Until that time, however, at least a sizable portion of these unused funds will be returned to telecommunications carriers to stabilize their customers’ telephone bills, the agency said.

The ruling is intended to resolve the key question of what to do with millions of dollars left over from the program’s first three years. But some observers say the ruling leaves as many questions as it answers.

“It’s great to say that whatever isn’t needed [to keep consumers’ phone bills steady] will be returned to schools, but by the same token, we’d like some idea of how much they’re talking about,” said Garnet Person, chief executive officer of the consulting firm eRate Elite Services Inc., which helps schools apply for funding.

The FCC’s decision marks a compromise between the interests of education groups that benefit from the eRate and telecommunications carriers, or telecoms, that pay for it. Education groups wanted to see all unspent funds applied toward future program years, but telecoms claim the program’s funding mechanism is unfair and must be revised first.

The FCC is considering how to do this and will make changes as of April 1. In the meantime, the agency said it will use whatever unspent funds are necessary to keep consumers’ phone bills from increasing.

Now in its fifth year, the eRate is a federal program that provides discounts on telecommunications services to schools and libraries. Up to $2.25 billion in funding is available each year, but as interest in the program has soared among applicants in recent years, demand has exceeded this figure. This year, for example, schools and libraries have requested nearly $6 billion in discounts.

The eRate is paid for by contributions from telecoms to the universal service fund, which ensures that customers in rural areas get rates that are comparable to those paid by city customers. To offset the cost of universal service, telecoms pass on the extra charges to their customers in the form of line-item surcharges on their telephone bills.

Contributions to the universal service fund are based on a telecom’s reported interstate revenues from the past two quarters. But as demand for the eRate has increased, interstate revenues have declined, forcing the FCC to increase the contribution rate for telecoms. This has led to higher phone bills for consumers, the agency says.

“All of our universal service programs serve important statutory goals, and I remain as committed as ever to achieving those goals,” said FCC Chairman Michael K. Powell in a statement. “We must always recognize, however, that the cost of these programs is ultimately borne by American consumers. Accordingly, … we must balance the needs of funding these programs against the real burden that our contribution requirements could impose on consumers if we do not manage those requirements carefully.”

All four FCC commissioners agreed to the ruling. But Powell broke from his colleagues—Commissioners Kathleen Q. Abernathy, Michael J. Copps, and Kevin J. Martin—in adding that he would have preferred to leave open the question of whether unused funds would be distributed to schools and libraries beginning in April.

Copps and Martin issued separate statements affirming their decision to distribute unused funds to schools and libraries in the future. Martin also dissented in part with the decision, saying he would have preferred another solution that would stabilize telecoms’ universal service contributions without taking any unused funds away from schools.

Education groups expressed mixed reaction to the agency’s decision.

“Obviously we’d love to have seen all unused eRate funds distributed to applicants,” said Mary Conk, legislative analyst for the American Association of School Administrators. “But we feel this is a great compromise, and we’re excited about the way the FCC has come down on this [issue].”

She added, “We’re especially encouraged by the support for the eRate shown by Commissioners Copps and Martin.”

eRate Elite Services’ Person was more critical of the ruling.

“I don’t believe the solution should be using funds already collected for schools and libraries to fix future problems,” he said. “Fixing the [telecoms’] contribution factor is important, but these funds were already collected for the purpose of offering discounts to schools and libraries.”

Mel Blackwell, a spokesman for the Schools and Libraries Division of the Universal Service Administrative Co., which administers the eRate, said he was unable to say how much money remains from the program’s first three years, as the agency is still resolving appeals and issuing funding commitments for Years Two and Three. Year Three of the eRate ended June 30, 2001.

But in a Notice of Proposed Rule Making issued by the FCC in January, the agency referred to $970 million in unused funds as of the end of Year Three.

Blackwell said $256 million in unused funds will be returned to the universal service pool to offset telecoms’ contributions for the third quarter of 2002. Additional sums will be taken for the fourth quarter of 2002 and the first quarter of 2003 as necessary, he said.

The FCC is weighing several proposals to revise how telecoms pay for universal service. One idea is to assess contributions based on the number and capacity of a telecom’s connections, rather than on the interstate revenue it earns. A decision on these issues is expected later this year.

Links:

Federal Communications Commission
http://www.fcc.gov

eRate Elite Services Inc.
http://www.erateelite.com

American Association of School Administrators
http://www.aasa.org

Schools and Libraries Division
http://www.sl.universalservice.org