The leading company hired to oversee the program provided little if any training or guidance to phone companies over the past decade in how to calculate the bargain prices, known as “lowest corresponding price.” Instead, according to documents and interviews, it focused on the schools, examining whether their purchases of equipment were cost effective. The company and the FCC even forced schools and libraries–many of them unskilled in negotiating complex telecom contracts–to pay millions of dollars in penalties for failing to follow the program’s voluminous and cumbersome rules.
Yet 16 years after the law passed the FCC has not brought even one case against a phone company for violating the “lowest corresponding price” requirement. Efforts to enforce the rule have come exclusively through private legal action, such as lawsuits, and one Justice Department-led investigation that examined pricing in Indiana.
Much about the eRate program remains hidden from public view. Telecom contracts are mostly private, so it is not possible to judge how frequent or widespread violations of the lowest-corresponding-price rule might be. For this report, ProPublica relied on documents, many obtained from lawsuits, as well as dozens of interviews.
Mike Balmoris, a spokesman for AT&T, declined to answer specific questions about the company’s practices but released a statement saying “AT&T complies fully with the eRate requirements, including the lowest corresponding price rule.”
In an eMail, Verizon spokesman Ed McFadden said the company regularly trains its employees on all legal obligations, “including requirements of the ERate program,” as part of a larger effort “to conduct business with all our customers at the highest ethical standards.” The FCC also declined to answer questions.
A statement provided by an FCC spokesman, Mark Wigfield, cited the program’s overall success; the commission’s efforts to improve “safeguards against waste, fraud and abuse;” rules requiring schools to engage in competitive bidding to ensure low prices; and audits by the private company regulating the program that compare prices that companies charge schools to “those charged other customers.”
The FCC declined to make those audits available. But through a FOIA request, ProPublica requested every audit for the first 12 years of the eRate program involving the lowest-corresponding-price rule. The government provided what it said was a complete set–a mere nine audits.
In broad terms, they show that regulators paid little attention to telecom service providers while coming down hard on schools. Indeed, most of the audits deal with the companies as a side issue; the main focus is on whether the schools, not the companies, complied with the program’s complex regulations. Some of the audits are heavily redacted, but in the available text none mentions lowest corresponding price, the key cost-saving requirement.
The eRate program
eRate was created through the Telecommunications Act of 1996, which President Bill Clinton made law through the first e-signing of a federal bill. The act mandated broader telecommunications access through four programs, including eRate for the nation’s schools and libraries.
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